it would be surprising if it were not at least somewhat structural in the sense that you have these it two sectors that have borne very big burdens in job losses. . the unemployment rate of construction workers is about 17%. it seems to me pretty clear that those structural dimensions -- what do we mean by structural? they could be workers are deductible. or it could be is the output being produced to as it could be? are we seeing huge drops? you have seen a drop of 30% in construction production.

so if the production mix was more balanced, the production shortfall was more balanced, we probably would have a somewhat better employment experience. would it be going from 9% to 5%? no. would it be going from 9% to 7.8%? probably. i can clarify if t that we're all talking about the same thing with structural unemployment. they are jobs that are probably not coming back because of changes in the composition of output or at least changes in the composition of employment needs. ed suggested that maybe manufacturing will not -- will come back in production but not in employment. so if the nature of the economy is changing, even in recovery or

even in expansion, there will be workers who do not fit the jobs that are created in the recovery. is that a fair way of bringing this into focus? i think we are getting a little out of -- between sickert -- between cyclical and structural. >> and we do have a big cyclical recovery. some of the structural barriers may go down. some of these structural barriers, remember, and all things like housing location. i mean, were you have very, very high rates of unemployment in certain states and some in the middle parts of the country you do not, but people are under water in their mortgages. they are reluctant to move. so we have a big part of it there. and one other thing, one of the things we have seen in the housing market that is quite striking is that rents have not

really gone down. so what you see is a very big change in the relationship between the monthly costs of printing -- of renting and the cost of these big homes in these very much down communities. so you ask, if people are spending so much more per month for rent then they would have to spend to buy, why do they not just by? i do not think we know the full answer, but part of the answer is the financing, that banks made a mistake by an over- landing earlier, and they are fighting it. when they made that mistake earlier, the relationship between rent as a house prices in a totally different situation, house prices were relatively high compared to rents. i would call this not exactly a

structural employment barrier, but it does have employment indications that this box that we are in, housing, has to be dealt with for us to have a healthy recovery at all. >> do you have anything to add to that? >> the great puzzle is what we think about housing. nationally, about 1% of households are in foreclosure. in nevada, it is 3.3%. about three times as much. in florida, it is 2%. you think that what happened is just a shakeout and we got overheated in these two states but they are going to come back and start growing at their own rate, construction and then will pick up, and then i think the amount of structural unemployment may be relatively modest. i still the manufacturing has

two things going on. both the cycle and changing how we are going to make manufacturing goods. there will be something going on in manufacturing. but housing, the other big sector, the question is, was it a temporary or was it a permanent structural shift? is the fraction of american households to have ownership rates -- will go back to historical records of 50% or so rather than the 60% that we were at? now it is different. something fundamentally has happened in that sector that will reduce the demand for those types of jobs and make people not change how we make houses but changed the demand for workers with those skills. >> there was a question over here. >> i am from the university of maryland. i wanted to ask the question in a different way. i have been thinking about innovation. you hear a lot in washington that the fed wants to let 1000

flowers bloom at the state and local level. yet, and ovation as kind of a pain in the neck. you have done minister a bunch of different programs -- you have to administer a bunch of different programs and monitor process and progress. there's not much of an appetite of the federal level for a bailout. you can help states by just getting out of the way. he mentioned the $150 billion that went to the states. there was another $130 billion that came with significant strings attached. can you talk about specific ways that can help out by getting out of the way? -- can you talk about specific ways that the fed can help out by getting out of the way? >> i can tell you that every one of the mandates or procedural requirements were all put into place by people of good will

with important public purposes to be served. if one tried to calculate what the environmental reviews cost in terms of delayed construction, loss of employment or a deferral of it, i mean, it is a staggering amount of money. but if anybody were to suggest i politics that you shortcut that price, i suspect you would be treated as a first-rate neanderthals. there are --, i'm there are so many mandates and requirements, and some of them exist for the protection of the public and has to do a public safety, security. at the federal government is going to subsidize housing, they want to make sure that the subsidy is for the benefit of

the people they are intending to help. therefore, there are a lot of prophylactic process is put into federal applications and federal review procedures, all of which add enormously to the cost, discourage private investment. we have to make some very, very tough choices in this society. the likes of which we have never had to make before. because austerity is now so compelling and every micro decision the government makes, i cannot begin to tell you how this process is going to work out. but i can tell you if it does not, it there will be terrible things happening. somebody is going to run out of cash. >> one of the areas i think you could get a lot of innovation is there's probably about 200

individual grants the kunduz state and local government, some of which are matched. -- about 200 individual grants that come to state and local government. some states combined these grants. some states have an urban city that could combined with a state any move towards performance contracting. we'll give bonuses if you meet those outputs. there's a lot of money there. it could be spent a lot more effectively. you could create a lot more innovation if you move to that. i have been around long enough to know that when you move toward block grants, you lose your ability to support the same amount of money on the hill. but the pendulum has just swan increasingly every single year towards more and more restrictions on this money. i mean, you used to be able to get waivers on medicaid and do

demonstrations. we have moved. >> can i give one significant the illustration of what ray just said. on medicaid, if they were in managed care, the cost is substantially less than if they're not in a managed care. yet, because of a provision in the medicare law tthat gives everyone the right to pick the wrong doctor, you cannot get roughly 40% of the people on that medicare -- you cannot put them into managed care because of a federal requirement not intended for the effect that it created. but intended probably to do with the medical profession wanted and make sure nobody could be

ofscribed -- nobody's choice physician would be federally prescribed. it is a very significant economic factor in new york's medical expenses, which are going to exceed $52 billion this year. >> i am @ daniel from the urban institute. i was surprised by the content of the talk. talking about budget and employment woes. and it was not until the question where we started talking about employment. we discussed a lot of that was structural issues. is it even on the table in governors' offices to think about this as a demand management problem rather than just a deficit management problem? or is that only felt that the federal level? >> if everybody is getting

elected on a platform of no new taxes, it is hard to reconcile that with the demand side of politics. >> although i do think that if you talk to governors, they are trying to encourage job growth. they are mainly doing it through saying that they are going to cut taxes and give tax expenditures to places, but i think governors are very interested in these two things. but there is this tension of how to do things if you do not have the money to go forward. i was going to try to give an optimistic note to the question. at least in california, i think there have been, with some of the declines in state funding to local government, some freeing up of resources. for example, california cut the demand for a state school districts to spend the money in the categorical programs in

that area and come by the number of those programs into one block grant. so they gave some flexibility, which was sort of an upside to the fact that the cut the amount of money the schools were getting by a significant amount. but at least it gave them some flexibility locally to decide how to best spend their money rather than making sure all the boxes were checked. >> there is a question here, and then i will move across. >> i am from icato institute. -- joseph from the cato institute. medicaid spending has come up. are there any states that have successfully started restructuring programs or are there ways states can restructure this area of their spending to kind of curb the constantly growing expenditures?

and is this complicated by the new health care reform law that was passed? >> i think i mentioned that you cannot reduce eligibility below what it was as of the date of the enactment of the obama health care. that limits states' ability to change anything. so it is an upward spiral in cost. >> they have been doing a lot of things that they can do from drug formularies to managed care. most of the cost is really in the dual eligible population an increasingly high and long term care, which is a very difficult to make savings. i mean, there is this whole issue of dual eligibility is just a mess because states will not take certain action because the savings go to medicare. and there's no willingness to share it. this is an area where you really

could manage to get a lot of savings, but the administration is creating a new office for dual eligible, the bill there was nothing although we tried hard to get some things included. plus, the expansion, you're going from $60 million to $76 million in medicaid all the way up to one under 30% of poverty. so that is a lot of additional costs, too. >> i am from the urban institute. i sensed that the state, even more than the federal government, is engaged in payments to providers. the money they pay is going to providers, whether directly or indirectly. the doctors on the kidder the drug providers, professors at

the university, state employees, so on. my sense is that politically a lot of the communities have done ok. you have talked about what has happened with the state pension plans, which by the way favor older workers much more than younger workers. but i am wondering, as we move into the next decade, whether there's going to be momentum on trying to figure out how to more efficiently produced decide payments to providers as opposed to -- examining whether our payment system providers goes beyond the pension systems. we decide we want to give poor people access to $300,000 a year surgeons but not $50,000 a year teacher aides. whether we want to pay professors to teach only three courses a year compared to four. it seems the question of how we pay providers is a part of the question of getting the budget under control. it is not something we do well.

>> which part is the question? >> basically, yasser wondering to what extent are there ever -- i am wondering to what extent our other efforts under way to help us better and more efficiently pay providers? >> the reason i keep talking about public-sector employees and wages is because that is where the money goes. it is recognizing that if you're going to actually -- if you are talking about spending, what you're talking about is money to people. rightly or wrongly, we have to figure out how we want to do that. the area i know best is education. there has been some movement to trying to evaluate -- how do we judge whether somebody is doing a good or bad job and whether we should compensate them differently? these are long-term goals. we have systems in place that have been in place for a while,

but there actually is some discussion about whether we should switch how we structure in classrooms. and i think in all areas we're going to need to see how fundamentally we do this. understanding how we restructure each part of the state budget i think is going to have to be step one. i am more optimistic that that can happen rather than seeing if we can actually have people in a room and make those trade-offs and whether we would rather have a college professor or an aide to an elementary school teacher, because i think that is a level of conversation i think we're not at yet. >> i have three questions here. let's take those three in a row. we're running out of time. i will take the questions, and then we will get the answers. >> i recently left the gao.

more of that half the state's got reimbursement rates on medicaid during the downturn. there was a report released this month on that. that is one of the ways they saved. the basis of this is based upon the continued downturn in the economy, the state and local revenues will not recover. having tracked that for 30 years, i know 10% of gdp, it is religious. they follow that closely. we have all this unmet demand for cars that have not been sold for two to three years. we're growing population. are you not being unfairly pessimistic about the economy, and therefore the ability of state and local governments to -- >> will hold that question. and fairly pessimistic. and the gentleman here --

>> i just have a question in terms of federal fiscal policy as well as monetary policy, specifically qe2 and how that will impact the state budget woes moving forward should the cost of borrowing be made easier if federal fiscal and federal monetary policy is relaxed moving forward. >> ok, a question right over here. >> i am a retired activist, le ftie activist. for robert ravage, -- for the lieutenant governor, i am interested in your statement that there is so much overlap in our communities and that one of the things we should be doing is

eliminating duplication of the state school districts, police, fire. how do you go about doing that when people are so self-serving and want to be the mayor of their small 400-person town? >> we will take that one first and then switched to the economy. >> that is a challenge. i do not need to give you a clue me answer, but that is exactly the challenge we have. -- and cannot mean to give you a gloomy answer, but that is the challenge. we have not had the resources we need to do the things we're doing for the last 20, 30, 40 years. they have to understand that the alternatives are limited, and they're not very happy ones. there will have to change. either they will have to give up some of the local sovereignty, if you will, to get more efficiency in the

government. or they are going to have to give up something else. or they will have to pay a lot more taxes. until we have politicians, and we do not have to many these days that a boy to tell the public that there is no cheap, easy way out of this mess until we regain some bipartisanship in our governing system, we are in terrible trouble. >> ok. two on the economy. are we and fairly pessimistic, and can we change fiscal and monetary policy to make this better? >> i will start with the optimistic side. the economy is growing, and that is in spite of the construction sector that has been down in the doldrums and remains so. i think that is one of the challenges of getting the economy to move more quickly. but in response to an earlier point, the dollar has become

more competitive, and our labor costs are more competitive. and that is a big reason why manufacturing output has come back. so even though it does not create many jobs directly, there are a lot of indirect elements to it. my own view, as i said, is that the housing sector is the thing that is really holding us back in a very big way. and i have some thoughts about how to do that, but that would take too long to explain. but overall, i do think that over a four to six year period, will work our way out of the problem. >> i was just going to say on state budgets, i think we

probably are going to come back to the same percent of gdp. the problem is that as what government needs to provide changes, especially as health care becomes a larger part of that, i think is going to be tough to figure out how we provide to the other services. the growth in the public sector on a per-capita basis has been happening in part because there has not been as much technological change in that sector. i think the last couple of recessions, states have actually done pretty well, in large part because there were bubbles that happened right afterward. if you think about the dotcom bubble and the real estate bubble, i think state budgets actually recovered in a way that left the kind of an unsustainable, especially in places like california and new york. >> and i will go back to the 1980's. there was a lot of doom and gloom about how the economy looked. the steel industry was dying.

i think people do not see a way forward. the simple fact is we did grow at a fairly robust rate. employment grew very rapidly. back to my first point about being humble about our forecast, he raised the issue of state budget forecasts. there have been notoriously bad. they missed on one side. but in 2000 and in the 1990's, they would find surpluses faster than they could even spend it. partly because people did not know how to best make capital gains and return the revenues to get from there. partly, we do not know how to predict innovation. what new sectors, and what new products are going to come on line? and having been out there in our world, there's an incredible amount of entrepreneurialism spirit. i cannot tell you which would be. if i could, i would be a wealthy

person. but i have great faith that there is likely to be a lot of that out there. so there is reason to be optimistic. i think the short term, however, the next year or so, just is not look that positive. i think output, people say it will grow at about 2%. that is positive, but it will not be enough to drive the unemployment rates down to where we want them to be. it will get better, but it will be slow at best. >> i want to thank all of our panelists. i think the bottom line is that we come away with is there are a lot of tough choices for these governors and that both the public and the private sector have to think differently about how things are done. and i guess that leaves us with more to be done, both in terms of actually doing it and those of us in research and policy making, i guess a lot more for us to think about.

a lot more for us to do. thank you all. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

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over 300 speakers focusing on innovative ideas to help economic, social, and education problems. this is just over an hour. he was focusing especially on it telecom and was famously involved in one of the greatest -- is may still be the biggest washington, d.c., had ever. the company invested in 1997 and was sold to cisco for $7 billion two years later. so he is a pretty good venture- capital list. he has done a bunch of other interesting things. then in 2004, he left to do his own investment business, which

he really did not even start as a business. he will tell us about that. he is focusing now much more on energy and other stuff we will get to all that. but i wanted to ask him, what did you think of the previous discussion? how is it relevant to rebuilding america? >> you know, i think a very different attitude -- i take a different attitude than the previous panel. that was about models and what you should do at the macro level. i believe most forecasting models, those opinions are based on thought and are fundamentally wrong. things happen from the bottom- up. and more economies are being driven from the bottom-up. and you see unusual phenomena coming up driven by individual notes in every area. technology, quality, energy,

even education. little stuff happens that takes on a life larger than its own, and that is the way the model will work. economies are complex system and cannot be modeled with econometric models. there is one fact, and i like to talk about a professor at you see berkeley did this study -- at uc berkeley did this study about expert forecasts in the economy and politics. 80,000 forecast, 20 years of cracking the 250experts, he found the average accuracy of the forecast was the same as monkeys. so that is sort of the attitude i bring to the party and big econometric forecasts. >> but the alternative then is innovation, it has to come from the entrepreneur s.

you take that as a given. >> you know, most significant changes that happened in society will happen from the bottom-up. little phenomenon the start locally and multiplied x -- exponentially. what to do that map, the exponential multiplication result in dramatic change. in 1988, you cannot ask anybody -- or 1985, you cannot ask anybody about the soviets breaking down or the cold war. even 15 years ago you cannot predict the fall of china. all these are bottom-up phenomenon. you cannot predict two years ago that we would be talking about morgan stanley going bankrupt, which they did. it was the main conversation by the end of 2008. these large phenomenon are based on what we call black swans.

and improbable does not mean an important. people think improbable is un important. it is not. from my point of view, black swans are rare events that have extreme impact and only read prospective -- only retrospective predictability. >> so when you formed your firm, you did it to increase the chance of covering the black swan? is that the way you think of it? >> yeah. we take a very different approach. much larger revolution in energy, all education. you can never explain it if you operate with probabilities.

i am interested in the 10% probability of radical change, stuff that no self reflecting -- self respecting expert could predict because it seems flaking. 1985, i had these conversations with the ceo about people say nobody is a computer in every home. a computer in every home sounds improbable. he is right. you only need a few hundred computers in every home. your refrigerator has two of them. in 1990, i got laughed at because i had my e-mail address on tmy business card. in 1995, the senior executives at at&t told me they would never go to internet protocols. they had this other model of how a telecom network is built. in the year 2000, you cannot get

anybody to believe mobile was important. and people forget. january 1, two dozen 7, the iphone did not exist. five, six years ago, facebook did not exist. rapid change happens all the time. it is always unpredictable. it is never in a forecast. and no expert would forecast these things but it is a very different model about how economies grow and change. especially if you add in diversity. >> you move from telecom to focusing predominantly on energy. why did you make that switch? >> back in 2000, i saw that as long as you're playing, good things happen. play with the important stuff. in 2000, i had a choice. should i play with poverty or in energy? >> is the only poverty and energy that you even considered?

>> those are two large problems i thought i could work on. i said i would do lots and lots of little experiments and a probable experiments and see if something propped up and large phenomena. i will give you an example. i invested in this little outfit called sks doing my grow finance loans in 2005. five years later, the company is worth $1.5 billion. it is a public company in india. five years later, they're adding 400,000 a month big luck -- below the poverty line, making less than $2 a day, to their roster. opening 60 new credit branches of the month. this phenomenon, once they take off, the exponential results in things you cannot imagine. i will bet you that $2 million i gave him has had more impact of

the hundreds of billions of dollars of poverty programs. >> i want to get to this issue also get up and want to talk about sks and the dichotomy between non-profit and profit. let's stick with energy. you have done so much with energy. i mean, just give us your big picture analysis of where we stand with energy innovation and what our big choices are. >> i am probably the only optimist who thinks the energy problem is relatively easily solvable compared to what people think. can i see electricity consumption in this country dropping by 50%? absolutely. can i see coal being cleaner than solar? absolutely. you just have to use your imagination. those are very contradictory statements. and all of that, without doing

what environmentalists are saying, live a different lifestyle. i am now living a different lifestyle. in fact, i sort of a fundamentally take the view that 500 million people today have an energy-rich life style on this side -- planet and 5 billion people can have an energy-rich lifestyle. we can find 10 times as much oil. >> in other words, there's no choice but we have to find a way to make it possible we have a serious problem for those 5 billion whose aspirations are irresistible. >> right. been there is no physical way to group for 10 times more resources than exists on the planet. but, and there is a great but, for me, how does the light bulb take 80% less electricity and has five times more light available for all these people? absolutely, we're doing that. can we have air-conditioning save five times, 80% less electricity?

absolutely, we are working on that. in mississippi, not far from here, we're building a plant , biomass, andod nature turns it into crude oil over years. not ethanol. and to crude oil in one setting. by the way, all these technologies, whether it is a piece in this electricity for lighting or 80% less electricity for air conditioning or producing crude oil, having engines that are 80% more efficient can be done without any of this stuff needing policy or legislation. they can compete and subsidized in the marketplace. policy helps. but technology makes dramatic changes happen. >> but you have this black swan theory, and that will only prove to be true if enough people are trying, right?

clearly, i cannot believe you would even argue that enough people are trying. do you not think we have sort of an absence of understanding of the scale of the opportunity and the need for some of these innovations? therefore, not enough balls being shot on goal. >> yes, i am a big believer that the policy thing we have to do it is to the policies that encourage more shots on goal. if these are improbable events, a model of the world is a very simple. we will probably make 100 investments to various technologies that transformed hopefully parts of the infrastructure of society. if there were 100 such portfolios, you have 10,000 charts and goals. you only need 10 and out of 10,000 to succeed to have a completely different world. internet and telecom changes. google, we made investments with

two or three people, and a completely changed the world. we did not get to invest in facebook. but 500 million people on it in five years. >> six and a half years. >> six and a half years. so we need to take these goals. we can absolutely reinvent the infrastructure of society and we can take more improbable bets. >> but are enough being taken, and if so, where are they being taken, here are in china? >> unfortunately, the investment world once safety first. that is exactly the wrong thing to do. no question in my mind for the next 10 years, and if you want to participate in that and take long shots, operate on the fringe. how will that happen? today is happening a little. but as soon as you have one or

two great ipo's, agreed will take over. investors will stop worrying about the fiore part. between fear and greed, investors ago between two emotions, fear and greed. they want to be safe. as soon as it happened in the internet, the netscape ipo triggered this huge investment. maybe even over investment. but a dotcom bust is not all bad. enough good things came out of it. remember, google came after the dotcom bust. hundreds of millions of dollars of value created. i think greed will takeover of the right point and create many more shots and goals and hopefully will set the right example. >> so you are fundamentally optimistic about our ability to make this transition to $500 million to $5 billion. does that include fundamentally

optimistic about the prospects of the united states? >> that is a different question. yes i fundamentally optimistic about energy and resources on this planet. you can see the 9 billion people to exist on this planet budget thousand 50, and it will exceed that. almost all the mechanisms experts talked about that are extrapolated from the past will be wrong. i can almost certainly say to leave it as we know it today. i do not think what we're doing with banks is that important. it will or will not happen in a big way depending on what happens to electric storage. so there are these complex systems and unusual things in

it. >> optimistic about the u.s., yes or no? >> if we keep encouraging innovation. i do not believe we, as a country, can succeed in a top- down quality-driven away. you know, stimulate this, this great deal. if we encourage innovation at the bottom, and we have done a pretty good job of that. the best minds of the world still come to this country to innovate because there is an ecosystem. it is preserving that big a system, and i am a fairly optimistic. one of the great things europe is doing for us is they are becoming -- they're looking at immigration bill that will encourage a lot of people. europe is doing as favors. china is doing innovation and doing as a big favor. if we become like japan, which is a closed society, we will

lose our punch. there were supposed to be all- powerful in the 1980's. did not happen because there were so close. so it opens across cultural thing. and i saw this -- i wish we had time to argue. angela merkel said recently that multiculturalism in germany has failed. you should google it. it is a very important article. i think if we take that type of view, i can be optimistic. >> openness about people, openness about new ideas is this a metric there. you have a starlet held view about technology as kind of the only salvation. just talk a little bit -- why are you so convinced that it is only through technology that we can address our problems? and if you really do not think there's any other way, is that fair? >> well, i think technology is the only way to multiple

resources. now, you need good policy to direct it appropriately. but the biggest multiplier is technology. you cannot mandate efficiency reductions is solve the problem without technology. you cannot mandate not taking a shower in the morning and using all that water. so i think technology is both necessary and the single biggest liver. we need good policy. we need good systems, execution, and it -- other things. let me give you an example. i am not smart enough to follow all of it, but this is abstract for me. let me give you an example. there is a panel coming up on education. let me set that up. we keep talking about improving our schools. and among the to meet one of the

panelists. that may be true. but must apostolate the maybe the right way going forward is to eliminate schools? let me tell you the story. there is one guy -- >> to many extreme ideas. >> i like extreme ideas. but let me give you the data. this guy says school is a boring. he worked at a hedge fund. a young guy in his late 20's or early 30's. said on the side i will take this simultaneous equation. he did it on youtube. and kids started using it. he had something like 3000 videos on youtube. a two-minute videos. so model of education. -- so an mtv model of education. guess what, he is getting 3000 students a month coming to his

website on youtube, and they're learning without textbooks. you do the mathematics. he will be at all high school students before long. so i am working with him. it is stunning. look up the academy. it is reaching a relatively large percentage of high school students today, teaching the mathematics, physics, chemistry. he is youtube videos only for all that. maybe that is the way kids will learn, and we will see innovation that is an expected. to make, model more concrete, i could give you 100 examples that you had time. >> you mentioned sks having been such a huge business success as something that a remedy is poverty. you also do some nonprofit board with micro finance institutions. how do you park your work in a nonprofit versus for-profit?

unfortunately, it has to be our last question. someone with your kind of wealth, a lot of people this giving their money away and hoping for the best. >> i have to it may, i sort of have a cavalier attitude. what i like is stuff that intellectually stimulates me. as i said to david when we were talking earlier, you know, i could have afforded by paying a $100 million yacht. the series of experiments is sort of like my yacht. instead, and has said to my wife, i am going to play around with these little experiments, half a million there, 1 million there, and see what it takes. more shots on goal. but frankly, it is just fun for me. a better lifestyle. i enjoy in more than i would enjoy a yacht. that is my view of life. it is very fun. if nothing else, i will at least have fun in life. >> thank you so much, vinod.

>> thank you. and thank you, everybody. [applause] >> the next panel is the practitioners. ♪ >> good morning, and welcome to

the second panel discussion entitled "getting it done their cargoes with the u.s. managing editor of the financial times. joining me this morning is a terrific line of speakers. we have started on my left, you're right, john kao, chairman of the institute of large scale innovation. next to him is david neeleman, ceo of azul airline , a brazilian startup airline company. next to him is michael polsky, founder and ceo of invenergy, agreeing company, agreed that technology company. at the end this the director of global green's new orleans resource center and office, elizabeth escalon 2. we heard the view that was pretty depressing this morning.

depending on whether you agree with or irrespective of whether you agree with prof. ferguson or professor stiglitz about what the government can be doing right now in terms of stimulating the economy and what that would do to a long-term fiscal health of america, the picture is not all encouraging. but i guess the key question we need to ask right now is that even if policy makers, politicians, academics think that the outlook is so grim, what is actually happening down on the ground level? never mind about the gloom of 30,000 feet. what do real-life people who actually have to navigate the system today, actually run companies and try and make money, actually think about things? what role can policy plate, and what degree can innovation actually help in rebuilding america? i will start with john kao, who is the limit -- and has been looking at innovation for several years. how do you read the current situation? are you as gloomy as the first

palace to work? >> it is the best of times and the worst of times, to paraphrase a well-known author. the fact that i had this great colleagues appear on stage suggest that there's a great deal going right with innovation and there's a lot to applaud and we will get into some of these stories in more depth. but i also think we are in a tricky time in history, and it is worth setting context. the political philosopher once famously said that in the time between the old order and the new order, a number of mortgages symptoms were likely to appear. that is our transition point. that is our obstacle. that is the significance of the notion of rebidding. every bidding is about making a transition were you not only have to terms and the non but you have to turn something off first. you have to make choices did you have to chart a course ibarra to put the u.s. on the couch for just a minute, i think a couple of the most of born obstacles to innovation and to getting it

done actually have to do with the realm of mentality or what was referenced as animal spirit. it is almost as if we are in a state of denial, we're in a state of -- in essence, trying to grapple with the notion of what the national story is around why we should be an innovation nation and where we are going in terms of the future that we want for ourselves. so this whole notion of we have no choice, which the mayor spoke of last night, in some respects has to do with an external crisis. so normans had katrina. there are many example -- so norland said katrina. there many examples of crises that galvanized these things. in the thick lend -- in finland, they had problems because of the

demise of the soviet union. the prime minister at that time said we had three things to succeed on. education, science, technology, and innovation. those are the big plays for finland, which is paid off very well. but it took an install crisis to break through business as usual. in this country, whenever a problem with a denial, with not knowing how deeply we have a problem, and more importantly, building a broad consensus around which ships the plane of engagement for all of the innovation and we're hoping for on a mass scale. i have no doubt that there many people who you get our most argued at the apex of the innovation pyramid, but we're talking about trying to create or regenerate and innovation society, where it matters more that there hundreds of thousands, millions of people engaged in the innovation effort. and to do that, i think we need a new era said. we need a sense that america is not about to not miss the ball

but he did out of the park. so this mentality issue is extremely important. it also affects our view of the global map. so in my own work, i see that innovation has become a topic of obsessive attention on the part of dozens of countries around the world. we are in the middle of a new geography of innovation. so what is the mentality of americans in terms of the bracing this global innovation? we have been examples on the panel of people who, as seasoned entrepreneur is and innovators, can succeed anywhere and they shifted their geography and business models to be able to accommodate this new geography. so how does that play into the notion of a new mentality, a new way of encountering innovation? not just as an exclusively american province, but in an arena in which americans serve as a systems integrator and before more engaged and are culturally intelligent as well

>> or launching a new narrative is what today is all about. not just for the policy elite. you are a real-life entrepreneur who happens to work in finland, but you are straddling brazil and america and uninteresting perspective as a result. what do you think the challenge is? when did you create jetblue? >> we moved to new york in 1999 and started flying in 2000. >> the last decade has been about innovation for you. >> we talk about education being

a problem here. go to brazil and i will show your education problems. i see people in brazil getting their first home and their first car people here are trying to figure at to get rid of their third car and the third house. innovation and what frustrates me is there are solutions that seem so obvious and simple that could easily be implemented, but -- we can talk about education. who has not heard geoffrey canada -- he says the cost $50,000 a year to incarcerate somebody. he can educate them for $20,000 a year and cut the incarceration rate five or six times. if you want to be a business person, you can argue it, but if you are not how confident

teacher, you cannot teach. but there is an interest that says we need to protect competent teachers. energy, there are some of things we can do. the first -- refers guys that put tvs on the airplanes. i got to watch the nfl -- why doesn't everybody have that? i don't know. 100% of our people are working in their homes. important job for a company -- crate on the economy, great on the environment. people are 30% more productive. i started doing that with my first company 17 years ago. what percentage of people were

working from home? ticketless travel seemed like a simple thing. i keep forgetting my ticket when i go to the airport, so we invented ticketless travel. southwest now gets credit for it. there are simple things we can do with energy. i have a solution we could solve like that. who likes going crosstown? all of you guys don't drive subways. it's good to go north and south, but if you have to go across town, all of the crosstown streets are blocked and you have to take a taxi. but there was a guy in brazil who could not afford a subway system. what he learned is he had these

buses and put people in an elevated platform. 10 doors would open and it was like a simulated subway aboveground. he said you are no more than a five minute walk. run buses going across town and let's do congestion pricing in the city to make sure. have the buses leave for free that go across town. $100 million and revenue you can fund and crosstown traffic is completely solved. the productivity would pay for that in a three days. you talk about it and people look at you like i don't know. i don't understand. there are complex issues and

simple solutions, but we seem to get mired down in old thinking. >> one of the reasons that white -- one of the reasons i like talking to entrepreneurs, in d.c., you feel like you want to throw yourself off of building because it is depressing and unproductive. but people are fizzing with energy. why doesn't more of that gets implemented? >> i don't know. >> ongoing to ask later whether you think things like the long- term fiscal health of the night -- fiscal health of the nation are affecting our fiscal plan. what do you see as a key issue? you are trying to use information technology in a more entrepreneurial way. what do you see as the key obstacles to growth and innovation right now? >> the words you used are information technology.

h-p is the largest information technology company in the world. primarily our innovation is focused on the technology part. we are seeing more and more innovation focused on information seats. i tried to make the case that information is going to be the most malleable resource we have in the next few decades. being able to get that information in the right people fans at the right times will enable them to grow their business and improve their education. this is all about changing the paradigm from technology being about productivity and computing through technology being about communication, collaboration and innovation not allow any technology side but the business model side. there is as much happening in business models today and there

has never been as much innovation in technology as today. you have multiple dimensions of innovation and combine the two. given the demographics we see around the world, we have to be in the beginning of a growth phase. >> [unintelligible] you are in what might be called one of the sexiest parts of the business world in terms of working in green technology. in terms of the policy side of things, many parts of the administration would like to pin their hopes on green technology, providing the engine for growth and jobs in the future. is it government being supportive in terms of innovation in america? >> the reason i am there, and it

is good for business. i am then energy entrepreneur and i saw opportunity when u.s. regulated production. you need certain market conditions and i don't think we would see jetblue if airlines were fully regulated. when they allowed for private ownership of power plants, i got into the business and then i saw opportunity in the green space. with green energy, we can solve a lot of problems. creating jobs, national security, less dependency on oil. i thought it made a lot of sense and i got into the business and i quickly realized you could have the best idea and energy is

very different from high tech. in energy [unintelligible] we do have ways to produce energy and ways we can make a for coal, oil, natural gas, nuclear and other ways. they do not distinguish and nobody knows if this electricity is produced from coal or clean energy. in the energy field, we need some direction as a society which way we want to go. really, [unintelligible] let the marketplace decide -- i think we need some policies. what i found in energy is we

could produce went cheaper than utilities, for example other sources, but because the market is tightly controlled, you cannot sell, even at a lower price. so this is not particularly a free market. there is a lot of discussion about green and the united states went energy shrinks in half? >> it shrunk in half? >> the amount of wind generation this year is half of what 2009 and probably 2008 because there is no markets. already the reasons we have refillable now is because we have a renewable obligation for solar, people -- solar is more expensive than coal and probably will be for the foreseeable future. we need a certain regulation requirements.

it is because the cost of coal does not represent the true cost of coal or electricity. i am a free market person and i graduated from the university of chicago. people like to talk about the market, but it is not free. there is no free market. it is not an airline business. in energy, you can have cheap electricity, but we do not have the means to sell directory -- to sell directly. why would he buy yours? we need to be realistic. with energy innovation, a lot of money poured into energy innovation and the problem is

the key is access to market. unless we have markets to implement those innovations, things are not going to succeed in the long term. >> the government can put money into the programs -- >> entrepreneurs in free-market like our economy take care of innovations. we may need to stimulate a little bit, but these people make the project -- a product. if somebody can make fuel cheaper, they have to make sure they can sell it. >> when you look at the history of america in the last century or so, the most successful cases have been one the government has sorted demand and brought things rather than trying to rig the market in other ways. i would like to ask whether you think other countries are doing a better? we have had a discussion about

asia and china and i would be curious to know from you. >> i look around the world and we have this moment i know a lot of people tonight everything. the best thing [unintelligible] but the whole world is moving in that direction. even china and asian countries and in europe. in my opinion, the united states is behind. we were not behind it least of great entrepreneurial minds and i think a lot of things we do in anticipation that something will change -- but i think we are behind. in europe, the have better policies and now look at china.

the chinese not only stimulate manufacturing but create their own market. we have more renewable energy in soviet china than at the united states. it's not that they manufacture to sell some place else. we have to do a better job of opening the market to innovation. >> energy is a big issue for everyone. i am agnostic on greenhouse gases -- [unintelligible] i put a lot of particulates into the atmosphere. i have airplanes. i hear guys coming to conferences in private jets complaining about greenhouse gases. least i am taking a lot of people at one time. one of the biggest creators of a

greenhouse gases are cold-fired plants. the same people complain about greenhouse gases car not doing anything with nuclear. one little pellet this big that you can hardly see, it is actually recycled nuclear byproduct, is equal to 200 carloads of coal. you could put that piece in this room and run the vote -- run the world for a thousand years. you just have to figure where you put the room. is it more important to put 5 billion trainloads of coal into the atmosphere or is a more important to figure out where to put this room in some mountain somewhere? if it's a mountain in your state, it nothing can be done. instead, we will put all of this stuff into the atmosphere

because we cannot figure out where to put something for the next thousand years. that's not going to do anything. to me, it is the stupidest thing in the world. -- i thoughte out nuclear would be embraced. if you are concerned about greenhouse gases, why not nuclear? stuff like that drives me in same. we should be doing that. that is pretty simple to me. >> this seems like a good moment to bring in bass. suggesting it does greenhouse gases, but nuclear is extremely expensive. we're not arguing about

regulations -- for example and i know people may think i represent renewable energy, but large utilities love nuclear because they charge consumers, but there are better ways to do it. if you want to choose the best one, let's choose the best one. >> wind energy is half as much as nuclear? >> [unintelligible] >> what happens when the wind stops blowing? >> we have a large nuclear facility here that ended up costing so many more times than they had originally projected.

>> [unintelligible] you are trying to act as a bridge between the corporate sector -- >> i am working with a non- profit and working on social entrepreneur development in the city of new orleans. just to add to the dialogue, we have been listening to the gloom and the doom and the fear and you get out of the fear problem by greed and i think new orleans is a testament to the fact that it does not have to be that way. we don't have to continue to embrace the old model of is either fear or greed. new orleans is an example of what love can do. mean love in the squishy way, i am using love as

power. fear is powerful, greed is powerful, but the only reason new orleans is here today is because of love. fear was a big motivator and we ran on adrenalin thinking your lens was not going to be here. millions of people and a lot of politicians from other parts of the country said new orleans should be written off. when you are told you are near death, it is a powerful motivator. people lost loved ones, families were destroyed. businesses were destroyed. you want to talk about a cataclysmic event, you are looking at new orleans. the tories was give up, let fear and despair rule the day or try something different. that is loved. we love this place, we are not

willing to let it go and we use that energy to drive the conversation august to put individual lives back together, but to drive business and government to a more sustainable and resilient place. you heard a lot about this from the mayor last night, talking about this renaissance that is occurring here. i work in green buildings here and this unbelievable the embrace of the green building industry and increasingly renewable energy and on the horizon, coastal restoration innovation is the silver lining to the bp spill. the mentality of this city is something you can learn from in your businesses and we think

government can and should learn from. we are trying to sparks the sense that this motivator of love can move you forward. the most common search term on the planet is love. when we are looking at innovative ways to restart this conversation and jump-start the move away from the freezing fear that has gripped this country in so many parts of the world, in new orleans cully have come to terms with up five years ago. it was an engineering failure, but we are in some ways moving on and we can serve as a model for the country and drive this dialogue and action ford. us -- drive this action forward.

the importance of the narrative and to pull people out of denial, i worked in japan of few years ago and there is a wonderful japanese proverb that says if you put a frog into a pan of cold water and turn it up, he will well to death but if you put him in boiling water, he will jump out from shock. is america and leave situation of being put into the water and slowly heating up and suffering as a result? when you hear the story of the resilience of new orleans, does that suggest to you there is an example of not succumbing to deny all other businesses could follow? >> it is an inspiring story and i think the whole area of social innovation which is still an

ill-defined discipline, it is the leading edge of innovation on a worldwide basis. this idea that innovation is not about making new stuff to sell at the margins to experience economic growth and get executive bonuses, it is about the common good. it is something we have to offer on the global stage. it is probably not enough to look in the mirror and say we are an innovation nation because of all the reasons we said. americans love a good come-from- behind story. the problem is we do not have that yet. we don't want the national equipment -- national equivalent of a katrina-style disaster. we should be able to figure out. -- figure it out. >> are like to ask the three

businessmen on the group, there's a theory that the reason businesses are not investing right now is because of the lack of animal spirits. many of them are worried about the regulatory climate, worried about the long-term fiscal future of america. is that the real reason activity is not happening or is that simply policy-makers in washington missing the big picture? >> it you bring this back to innovation, people talk about innovation and i think it is going to produce [inaudible] >> this is too complex and issue to find a singular issue. if you look at some of the things we're doing as we innovate, we are doing things that are socially important, but we are also doing things that are a bit for our business. we have a massive data center in

the uk. it is a very innovative. we placed it there because we wanted to take advantage of the north sea winds so you can open up this size of the data center so we can capture the rainfall from the roof. we use that to water the grounds and these are things we do because it helps us run our business more efficiently. we get a lot of press because we have these massive data centers. if we solve the problem completely, we have only addressed to% of the carmen footprint. information technology deployed in smart meters where we're talking about more efficient use of the technology is the other part of the problem. you have to attack multiple parts of the problem and not only are the solutions good

socially, but they are good for business. that's what you have to have to drive it. >> it seems to me that investment is continuing. the issue may be the geographical distribution -- we're talking before about 70% of h-p's cost business activities are outside the u.s.. i asked if intel was an american company and he said arguably not. this argument of talent, capital and ideas flowing across borders creates new challenges for us in terms of enterprises and their increasing array of choices as well as entrepreneurs. i said we were likely to start seeing visible evidence of brain drain out of the u.s. on countries like singapore are setting up $500 million digital exploration funds open to everyone in the world and you

see the quality of life outside the u.s. and improved operating conditions for u.s., -- improved operating conditions outside the u.s., that's likely to be a problem. >> you have set up your second company -- >> fourth. >> he said up in brazil and not america. why is that? would you create another company in america with today's conditions? >> brazil is at the beginning of its cycle. you look will we have accomplished and the lessons we have learned, the pros and cons and you're able to go back and start again, it's really exciting. we have markets, 75% of the city's we serve had no service at all and we were flying

between the airport in sao paulo and we have flights and a year ago there are no flights on the market. we have a guy who goes every day and night and has flown a thousand times already. ec domestic help or going back and visiting their families for the first time ever. instead of a 36 hour bus ride, they can go every month and fly home. america is still great. every time we go to brazil -- i hear he complain about america and i think if that brazil had this much of what america had -- what is interesting to me is how you get things done. brazil had a military into an

developed an ethanol business. they did it because they did not have to go through congress to develop a lot of stuff and now they are energy independence. you go to a cabin in sao paulo tank usingthere's a up part of bay trunk. confront ethanol, gasoline or natural gas. it's something -- they did not have oil and had to innovate and they had somebody who mandated it. we have a challenge in this country and i think if you do things that are meaningful and can change, if we decide to be like france and we figure out

how to get every car to be an electric car so you can plug it in when peak power goes down or bigger out how to make every diesel truck run on natural gas and make the owners of those trucks and idiot for not doing it, and spend money in those areas that will move things overtime or put the money into education and make sure the education is doing what it is supposed to be doing, if you just blow it and don't have a way to keep teachers accountable, we can get all those things pushed to that point and use the money to change the way we live our lives and create a lot of jobs in the process. >> in some ways, you represent a

version of the american dream because you came from the ukraine and of chosen to create companies in america. do you think america is still a good place to build a company? >> obviously i do feel we are a great place by many measurements. we have our issues right now -- people talk about access to credit we have become a common area of business. small business has no access to money. small businesses have a lot harder time and it is very difficult. we are not that small company, but we spend more time looking

where to bar the money and how to bar the money. instead of doing the business, that is more difficult. i still feel that unfortunately, i came here in 1976 and i feel now is one of the most difficult times where it is hard to predict where we're going. i still feel -- you don't innovate in a vacuum. he did not innovate in a lab thinking am going to come up with a marketplace. brazil got into ethanol because there was a market created for them.

brazil so we don't have fuel, let's get into ethanol. if we said we want 20 or 30 or whatever percent of the energy -- is government policy said we want to have 80% of nuclear, that is why it got done. >> we need a military junta or a dictatorship. >> certain things are driven by, but of a nation. we did not build a highway system because somebody said it was a great idea. longer-term, it is an infrastructure investment, whether it is highway, bridges, roads, what ever. we have to commit to improve our infrastructure i think

innovators will come. if you have a market opportunity to come, i got into business not by accident, because united states creates a market. you have an airline because the airlines were deregulated. we cannot forget that. i did not become entrepreneurs because i said i wanted to be entrepreneurs. i saw the opportunity in a specific area. >> that is a fantastic month to end on. you saw the moment, change it and there are still policy challenges and the structure of -- and in the structure. i'm sure you are all thursday for coffee. a big thanks to all of before the panel. [applause]

>> today is election day, marking the end of campaign 2010. the midterm elections will determine control the house and senate. join us later today for election results from the country. we will bring you victory and concession speeches and give you a chance to add your vote to the mix with your phone calls, e- tweets. dtweet the three americans orbiting the planet today have cast their ballots. space station astronauts, scott kelley, voted and the others also voted to hundred miles up. mr. kelly said it was an honor and privilege to vote from the international space station. we have dozens of debates, speeches, rallies and political ads available online anytime. also newspaper endorsements, analysis and links to other web pages at c-span.org.

in addition to all of the campaign coverage and archive debates, there is lots more @ the c-span video library, including non-fiction authors from book tv and everything we have aired since 1987, all free and index online at the c-span video library. >> a treasury department official said last wednesday that an investigation to fall to foreclosure documents are likely to delay the sales of thousands of property and may exert downward pressure on the overall housing prices in the short and long run. next, philip caldwell, the chief of the treasury department of motors preservation office testifies before the committee overseeing the troubled assets relief program. the hearing look at the affordable will mortgage program designed to enable

eligible borrowers to avoid foreclosure. other witnesses included homeowner advocates and mortgage industry experts. this is just under three hours. >> in february 2009, the president announced a plan to help as many as 3 million-4 million homeowners to modify the terms of their mortgage to avoid foreclosure. at that time, our economy was on track to experience more than 8 million for closures. the goal was always modest compared to the incredible scale of the problem. it was modest compared to the boldness shown in wresting a.i.g., fannie mae, freddie mac, citigroup, and the auto

companies. now we see even this modest goal will not be met. as many as half of these bar wars will default and lose their homes. recently, as the goal to preventing 3 million-4 million for closures is increasingly distant, the treasury's goal is now to offer temporary mortgage modifications 4 3 million-three -- 3 million-4 million homeowners. the goal is to offer a temporary mortgage modification of 3 million-4 million homeowners. this may sound settle, i don't think it is, but the difference is vast. barong shirt offered temporary modification may not accept. those who accept not complete the steps required to receive a program modification. those who receive a permanent modification could read a fall in their home. at the rate of homeowners

failings going to the cracks today, 3 million modification offers may translate to as few as 100,000 foreclosures prevented. for all of these, a goal of offering 3 million or 4 million modifications is hardly help but all. divorce is the matter -- a measure of success from its ultimate aim to keep homeowner'' in their homes. it is like a major league batter pledging to swing every pitch. what matters is not how often you swing, what matters is how often you get on base. i hope the treasury take today's hearing as opportunity to define in detail them publicly more concrete goals for success for foreclosure prevention. most fundamentally, here are my main questions. how many foreclosures must be prevented? what we default rate can we expect? what temporary modifications will convert to permit status?

clear answers are critical model for oversight work but for treasuries on ability to measure and improve its own results. i have evidence the foreclosure picture improved dramatically since the panel last examine the issues. yet all the evidence seems to be to the contrary. of particular concern is banks and loan officers may have rushed foreclosures by relying on affidavits rowboat-signed. these reports are under buying -- undermining investor confidence and the mortgage market and threaten to undermine americans' fundamental faith in the process. if this reflects a disregard of the parts of bank some the part of foreclosure, that would be unconscionable. it is conceivable the bank's problem is even worse. that the banks have failed to follow legal steps necessary to ensure a clear title. if investors lose confidence in

the ability of banks to document their ownership of mortgages, the finance industry could suffer staggering losses. the possibility is especially alarming coming so soon after taxpayers spent billions of dollars to bailout these very same institutions. i do not want to prejudge what we will hear from today's witnesses, but i must say that i am concerned. i am concerned because it is the panel's mandate to oversee treasuries foreclosure programs and the overall stability of the financial system. much more critically, i am concerned because across america, our mothers and fathers, sons and daughters are losing their homes. i do not pretend every foreclosure in this country can or should be eliminated. but even so, every foreclosure is clearly a tragedy. every time i families cast out of their home, their future is cast into doubt, the neighborhoods home prices plummet, and the accountability

diminishes. the american dream takes a step backward. treasury cannot and should not prevent every foreclosure for sure, but it can and must do far, far better. before we proceed, would like to hear from our colleagues. >> thank you, senator. since this panel last addressed the treasury foreclosure mitigation programs funded under the tarp, questions have arisen as to the identity of the legal owners of countless morgan's loans that serviced residential mortgage-backed securities or what i refer to as rmbs. whether the alleged donors' deliver clear title upon foreclosure or other transfer of the mortgage property. although the securitization trust organized with respect to each rmbs should hold clear legal title, such assertion is not free from doubt. it is possible that some of

these special purpose entities may be divested of their putative ownership rights in their mortgage loans or are required to incur substantial fees and expenses so as to reflect the proper chain of title to the promissory notes, mortgage lanes, and security interest in accordance with applicable law. investors in rmbs are asserting that mortgage loan originators breached warranties provided in their rmbs securitization documents and the securitization trust and their service errors should undertake put individual residential mortgage loans back to their loan originators. these investors may also initiate claims against the securitization trust and their sponsors and servicers for breach of contract failure to apply with applicable law and fraud for individual mortgage loan borrowers or class of borrowers may initiate wrongful

foreclosure and other actions against the rmb securitization trust and services. such claims may be compounded as the rights and obligations of a party to collateralized debt obligations and sthetic collateralized debt obligations are considered. since dark recipients acted as mortgage -- since tarp recipients acted as sponsors, credit defaults what protection buyers and sellers under a they couldnd rmbs, suffer substantial losses and impairment from the exercise of these legal rights and remedies. since fannie mae and freddie mac also acted as rmbs sponsors and given treasury's on limited suppor fannie mae and freddie mac may serve as targets for aggrieved investors in mortgage loan borrowers. conversely, the gse's acting on

behalf of the rmbs securitization trust may undertake to put individual residential mortgage loans back to his heart recipients and other financial records as -- representatives or cancel the guarantees issued for the benefit of the rmbs holders. the rights would create much uncertainty for tarp recipients and other financial institutions as well as for the residential mortgage lending and rmbs markets. the operating cost of many tarp recipients are rising due to commercial and consumer loan defaults and foreclosures while operating revenues remain relatively tepid due to weak loan demand and an overall sluggish economy. if another liquidity or solvency crunch falls during these events, it is not inconceivable

the rating agencies may downgrade the rating of certain rtgage loan originators. this is noted above and includes tarp recipients and noted financial institutions. this action could adversely affect the broader economy. in my vi, the administration's foreclosure mitigation program including all the programs have failed to relieve stress to homeowners. the administration has inadvertently created a sense of false expectations among millions of homeowners who reasonably anticipated that they would have the opportunity to modify a troubled mortgage loan under the hap and the harp. the best feclosure mitigation tool is a steady job. at a fair wage and not a hodgepodge of government

subsidized programs that perpetuate more -- and hazard risk. i question why the taxpayers should subsidize mortgage lenders and rmbs participants when it is most often in the best interest of such parties to forgive principal, to forgive principle and to modify a refinanced troubled mortgage laws without government assistance. why should the taxpayers provide incentives when they are neither needed or merited. as such, i would strongly recommend that each mortgage loan holder and rmbs investor and servicerork with each of their homeowners in professional good faith, transparent, and accountable manner to region economically reasonable resolution prior to proceeding with a foreclosure remedy. in my view, foreclosure should

serve as the exception to the role that only follows from the transparent and objective failure of the parties to modify or refinance a troubled mortgage loan pursuant to market-based terms. thank you and i looforward to our discussion. >> thank you. >> thank you, mr. chairman. good morning, before i begin with my statement, i just want to say that i want to associate myself with the comments of the chair. and i have not heard the comments of my other colleagues the fourthring is this panel has held addressing the foreclosure crisis. congress explosively required in the emergcy economic stabilization act of 2008 that the powers it granted the treasury department in the act be used in par to reduce the incidence of foreclosures. in response, the treasury

department ithe spring created the hamp program and the treasury has created other programs. i am pleased toelcome ms. caldwell as the director of those programs on behalf of the treasury department. as i have said on every hearing of this panel, foreclosing on a families, is not a matter of mere financial transaction. it marks a profound financial loss for the family and often devastating emotional defeat for the adults in that family trips psychological trauma for the children, falling property values and destabilized committees for the, as neighbors. foreclosures are a sure sign of a failing economy and a society that has been unable to provide basic economic security to its citizens. mass foreclosures should no more be encouraged by our public

officials then should contagious diseases or catastrophic floods or crime. these reasons alone would justify aggressive government action to prevent foreclosures in the wake of the housing bubble and the academic of exploited lending practices by our financial institutions. the social impact of foreclosures is not by any means the full story of the harm done to our country by the foreclosurepidemic. a mass foreclosures drive down real-estate prices, you can see that in the numbers that were announced in this way. they shrin the wealth of american households, not of the people being foreclosed but of all homeowners. mass forecloses weaken consumer confidence which underlies whether or not our economy will recover from the economic crisis and mass foreclosures threaten the solvency of our financial system through their effect on the strength of the

real-estate market. it has been cleared since the beginning of the financial crisis that bar wars, lenders, and the public at large had a profound interest i restructuring loans to enable homeowners to have the ability to make lower payments totay in their homes. by the way, for those who are concerned that somehow there is something morally suspect about restructuring loans, i should note that every day on wall street, people of power and privilege in this society restructure their debt. it is commonplace for everyone but the port. or. as the financial crisis escalated, the banks simply did not restructure the loans. the treasury department creative hamp offering $50 billion in incentive for the banks to restructure loans. yet a year-and-a-half later, we have only 467,000 permanent

modifications, genuine restructuring, compared to 7 million homeowners in the process of foreclosure. let me know and perhaps this is a slight different emphasis that i think that helping 467,000 families avoid foreclosure is a good thing. its a very good thing. it is substantially better than not helping them. it does not appear by any means, by any measure, to be good enough. nowe have learned that the foreclosure process itself and our system of property law is cracking under the strain of bible and a bust in residential real-estate market. there appears to be strong evidence being investigated by 50 state attorneys general and a federal task force that servicer banks have improbably executed and filed with the court's a large number of affidavits in the pursuit of foclosures. worse yet, since the affidavit revelations, evidence has mounted there are expensive problems with the liens that

produce securitized mortgages. today, i hope we can shed light on whether 467,000 permanent modifications plus another 20,000 or so per month is the best we can hope for from hamp. i am pzled and mystified as to why one community that i am familiar with with a budget of less than $20 million, less than a 1/1 thousandth of hamp, they seek mortgage modifications. i have seen the community group do this. i watched 20,000 people come through the washington convention center not six blocks from a year in one way. i don't understand what is going on in terms of balance. i would like to know whether hamp has paid out money to make sure they did not foreclose on

homeowners in situations with -- where the servicer did not have a ballot lien or filed a force affidavit with the corporate what plans the treasury department has for finding out whether this thing has occurred and whether public moneys have been paid out effectively under false pretences or based on false affidavits. i would like to know what plans the treasury department and the occ have for dealing with the possibility that either the major servicer banks will be held liable for their failure to properly serviced $7 trillion and mortgages or that the collateral forignificant amounts of mortgage loans turn out to be invalid. these possibilities what appeared to produce systemic risk. in particular, it would appear to have grave consequences for the very institutions that tarp initially capitalized and were allowed to exit qatar on the theory they were now healthy. this hearing involves some of the most important issues facing our country tay. i look forward to the witness'

testimony. i thank you for your indulgence. >> thanyou. >> thank you. the issue before us today is reclosures and the government's efforts to mitigate foreclosures remains quite contentious and fraught with strong feelings among the people debating this issue and making policy. when considering the effectiveness of programs designed to mitigate forecloses, in my opinion, it is important to keep in nd that the primary goal and one of the goals of the original legislation is to return the economy to a place where it can begin to grow at a pace that helps everyone currently in this -- in distre. all of us like to return to world where we have steadily rising home prices, low on an, rights, and an economy that is growing at 4% as of 5% per year. this is not the world the current 11. we are in an economy where housing prices nationwide have fallen by 14% from their peak

enterprises and the large metropolitan areas have fallen by 1/3 and annual sales have plunged by over 40%. the housing market has been in this equilibum four years before the recent discovery of the problems of foreclosures. the important question is what are the best policy for helping the housing market return to stability. until we achieve stability in the housing market, the economy will continue to limp along at 1%-2% growth and unemployment will remain unacceptably high. one of the main problems is that during the 2004-2006 period, many people borrowed money to purchase houses or took out home equityoans predicated on the belief that housing prices would continue to rise. as long as they kept rising, investors could refinance these loans at lower race-based -- based on the accumulation of equity. when housing prices climb, these

people were left with homes that were valued at less than the amount they owed. they're unable to refinance their lawn and face loan payments beyond their means. the question is what can we do about this probe -- problem now? one of the government's response as is the program we are focung on today, the home affordable modification program or hamp. this is presumably designed to help borrowers stay in their homes. the questions whether the program is effective and how the program of tax the broader economy. it works by reding the monthly mortgage payments of bar wars and a term extenon and/or a reduction of up to five years. then the program and send interest rates can gradually return to the prevailing rate in place of the modification that was made. it seems unlikely that bar wars especially those with negative equityill be able to keep their homes unless we see

dramatic improvements in the housing market which seems unlikely at this point. the monthly debt payments are equal to their income and it is hard to imagine any government program putting a significant dent in this number. this program is focused on borrowers who cannot make their monthly payments even though they are currently employed and not under water. this despite evidence from researchers at the federal reserve bank of atlanta and boston shows that workers who have experienced a temporary shock such as losing their jobs is much more likely to result in the honors keeping their palms. it appears that for most particants come hamp will only postpone the inevitable. despite all the attention they have received, homeowners with mortgages were not the only report by the financial crisis. millions of homeowners who did notave mortgages saw the value

of their homes plummet and this is devastating for those who want to use the equity for their retirement. their retirement savings declined significantly and families lost significance in their college savings accounts. for all of these people, relief will only come once the economy starts growing again. that growth will only occur once the housing market is stabilizing and that stability will not develop until people moved out of homes with mortgages they cannot afford an into housing they can afford. to the extent to hamp takes the can down the road, it ends up hurting all these people who are desperate for the economy to start growing again so their lives can return to normal. i recognize that some borrowers may have been misled in taking out loans they could not afford the perpetrators need to be prosecuted. i also recognize there have been serious mistakes and perhaps fraud committed by servicers and lenders in the landing and

foreclosure process and any illegal activity needs to be fully prosecuted. i recognize the tremendous pain that accompanies any foreclosure. it is devastating for families. it needs to be avoided whenever possible. there's $30 billion and dedicated hamp and i think we have to ask whether it is being used affectively. in other words, perhaps the start to examine a hamp is a program that will bring stability to the housing markets of the economy can start growing again. >> thank you. ms. caldwell, you and the department of the treasury does are substantial credit for pushing an industry toward more -- mortgage modification and preventing avoidable foreclosures in standardized format when the industry itself failed to properly act. in this way, the treasury

program has shown great potential. thanks to your work, we have a new industry standard that has kept more people in their homes that otherwise would have been able. certainly more thanhamp's monthly report demonstrates. this has been a major disappointment that the public and the panel have no way of meingfully measuring success pertaining to the alternative non-hamp modificaons. the available sources of data are simply inadequate for anyone to meaningfully aess performance among servicers board determined that these proprietary modifications are in deep helping successfully helping people. in addition, the current report does not provide the public and effective means to assess performance among servicers or to serve as an effective supervisory tool.

own havetrics on their stated that they have fallen far show -- far short of our hope. we have 700,000 families who trialbeen killed hqamp's modifications -- who have been fileed a hamp's modifications. these 700,000 families far exceed the 500,000 families who remain in the program with modification. the future also looks somewhat bleak. the number of newcomers entering the program each month is now near its lowest point. there have been more than a r ae-defaults after a long-term modification has occurred. this may be our last hearing on treasury foreclosure medication initiative. it is not as critical that we help the public fully understand

success and failure is, but we must get to the bigger question -- is this the best the government can do to demonstrate a way for? ms. caldwell, for whom i have a greater respect, knows better than anyone that unemployment and deep negative equity have been the driving -- have been driving foreclosures in a wayhamp simply can't address. this will continue to his family started treasury announced several new unemployment and negative equity programs in response but again, it is disappointing that six months later, the public still has no meaningful way to ascertain how these new initiatives are performing. as a final mner, i intend to explore with all our witnesses the issue of confidence. given many of the mortgage records, poor track

how do we continue to look homeowners in the eye and asked them to continue to work with their servicers given the latest news about fraudulent affidavits. the servicer is at a minimum now have even higher burden of proof in demonstrating they are serious about their stated efforts to work with american families. i am graful to you for being here today and want to thank you and highlight not just your public service at treasury, ms. caldwell, buthrough a long career of work for the underserved. i look forward to speaking with our other five knowledgeable witnesses today. >> q. thank you. i am genuinely pleased to welcome our first witness, phyllis caldwell. thank you for joining us and

thank you for your truly great public service for it we will ask you to keep your oral testimony at 5 minutes so we will have adequate time for questions. please proceed with your testimony. >> mbers of the congressional oversight panel, thank you for the opportunity to testify before you today on progress the administration is making on helping responsible homeowners stay in their homes and stabilizing the housing market. my opening remarks will focus on three things -- the administration's response to recently reported problems in the foreclosure process, efforts that treasury is taking to ensure service to comply andham is withp guidelines, and and really look ha impactmp has had to date. we expect banks to follow wl loss for any bank that has not done so should be held accountable and should pay prompt to correct its mistakes.

the administration supports the efrts of the 50 states attorney general's curre. we have been working closely with a broad range of federal agencies and with the state attorneys general to get to the bottom of these problems as quickly as possible. last wednesday, secretary donovan and guide our met with representatives from different regulatory agencies for the latest in a series of meetings to coordinate reviews on this issue. these state and federal agencies and regulators are requiring major banks to look at their servicing across the board, not just on this issue. there have been recent calls for a national moratorium and i would like to address that. an important part of assuring a longer-term stability in the market is to enable properties to be resold to families who can afford to purchase them. president obama has said that we cannot stop every foreclosure

and he is right. were making progress. i would like to turn to the relationship of these foreclosure problems to the administration's making home affordable part hamp is a part credit is intended to help eligible for homeowners before they are in foreclosure. it does not require a judicial process for homeowners to receive a modification nor does it require affidavits to be filed with the court. airha 4,mp is not -- there for a h,amp is not directly affected robo signers. should i honor not qualify for hampton or t homeowner falls out of the program, participating services are required to evaluate that homeowner for alternative foreclosure prevention programs such as one of theervicers

proprietary modifications or even the administration's short sale program are if all of these efforts are unsuccessful, hamp services may not proceed to foreclosure unless they issu a written certification to the foreclosure returning or trustees setting that all avoidable lost litigation alternatives have been exhausted and a non-foreclosure auction could not be reached. only after the steps are taken and the certification is delivered made the foreclosure process proceeds. to date h,amp has achieved a three critical goals. it has provide immediate relief to homeowners, used taxpayer resources efficiently, and helped transform the way the entire mortgage servicing industry operates. hamp established the university -- a universe -- a universal affordabily standard. more than 640 -- 640,000, others have expressed a 30% median

reduction in mortgage payments for more than $500 per month. in the year following initiation, home retention strategies changed dramatically. in the first quarter of 2009, nearly half of mortgage modifications increased borrowers payments or left their payments unchanged. by the second quarter of 2010, 90% of mortgage modifications lower payments for the bar wars. this means homeowners are receiving better solutions. ham uses taxpayer resources efficiently. they utilize a trial. to ensure at taxpayer funded incentives are used only to support homeowners who are committed to staying in their homes and making monthly payments. while the housing market is showing signs oftabilization, it still remains fragile and too many homeowners are suffering. the nature of this crisis has changed and will continue to focus our efforts on stabilizing the housing market and

preventing avoidable foreclosures. thank you and i will look forward to taking your questions. >> thank you. i am trying to get at these hard objectives. it is hard trun a department if you don't have part objectives. just like when john kennedy said we would get to the moon by the end of the decade, it worked out. hamp was announced 18 months ago. w much dyou think he will spend on the program? >> ha for themp program, we currently have $20 million dedicated to the program which includes the modifications and some of the enhancements for principal reduction as well as a little bit fh thea short 3-

finance program, $29 billion. >>, the programs involved this? >> our goal remains to help up to 4 million homeowners avoid foreclosure. we continue to expand and enhance the program to respond to the changing housing crisis. our program is targeted unemployment and negative equity and they are just under way and we continue to focus on reachin as many homeowners as possible. >> and what about the 4 million homeowners? the objection was that you are making offers. >> as you said, there is an objectivet. he gao last year confirmed that the goal was offers and while we at treasurygree that offers do not always translate into

modifications, we can measure the offers because that is something we control. we also measure how many of those offers are accepted and how many offers perform and then those that don't perform, where they go. we learn from us and continue to expand our program with the overall objective of assisting 3 million - 4 million people. >> where the default records over a five-year period? >> it is still very early to tell. we have had very few modifications in the program more than one year. early indications hamp modifications will perform better than historical modifications which have been up to 70 for a --5 percent re- default. over 90% of the people remain in the progressthe occ metric

report confirm h thatamp modifications are performing well and attribute the trialperiod program that, as are committed to stang in the program. >> to have an projection on what the defaultate will be? >> no, we don't. we are watching it very close to the early signs are that hamp modifications will perform well. >> i recommend you come up with an objective to what you are shooting for. you have data on it now. we're looking forward to what the default rate is. how many temporary modifications become permanent? >> during the first year of the program, less than 40% of temporary modifications became permanent. that was because in response to the crisis, we gave servicers the ability to offer homeowners a trial modification and submit

documentation. those services that collected documentation up front experienced conversion rates to permanent modification in the %-80% rate. the treasury reprogram requires the same. it will slow but the conversions to permit will be much higher. >> how you think the widespread problems of foreclosure documents will impact the stability of financial markets? >> that is something we are following closely. at this point in time, there is no evidence that there is a systemic risk to the financial system. we are making sure that our program is focused on foreclosure prevention and services are doing everything they are supposed to do. second, we are making sure that we are coordinating with agencies across the federal government's and the state and local attorneys general to make sure that those services

breaking the law are held, -- held accountable. we're looking at the mitigation risk to see if there's any systemic risk but at this point there is no indication that there is. >> thank you. for appearingv today. when you consider these factors, the foreclosure documentation irregularities is one and two is the failure of some securitization sponsors to assign properly notes and to record transfers of mortgages and deeds of trust according to the law as well as the exercise rights to buy back the loans, and given that a lot of a mortgage loan originators are

tarp recipients and other financial institutions, his treasury concerned, given these three factors and particularly the put rights, rm at thebs investors are corp. -- that they rmbs investors, a t bad dateoo big to fail th --at the too big to fail institutions going to lead to a capital crisis over the next few years? >> thank you for the question. we are still very earlyn this issue and we are monitoring closely guarded as you suggested in the question, there are three separate issues. termsro of thebo-signing, that is one we are following

closely. we need to fix those problems they need to be held accountable when they do not follow the law. the second when you discussed is the litigation. i am not a lawyer and i don't want to go through the legal structure but it is something as a practioner that has been in the industry for aong time and the courts are used to dealing with that and they will continue to deal with that. because of the affidavit issue, it increased in visibility but its not an -- a new issue but it is one we are following closely. third, a put back rest to large institutions, we are looking at this situation closely and we will be following the institutions to make sure. at this point, there is no evidence of a systemic risk. >> is this being discussed within treasury? there was a lawsuit filed the other day of a put back rest of

the bank of america loan. that was one lawsuit and i suspect there'll be many more to come. hi suspect that on panel 12, one of the panelists rejected $2.80 trillion of subprime loans. a small percentage of those and if the banks have to buy them back at face value, this could be a substantial problem. also, considering that this is not just a one-shot deal, when a mortgage is originated and put in an rmbs, it may be multiplied by some pettittecdo's. he may have those problems going back to the banks. it sounds like treasury as of today h not done a back of the envelops sketch as to what

the potential put back rights woul be to financial institutions >> @ treasury, we are monitoring the situation daily. the news continues to have a wide range of projection and numbers. i am not prepared to say there is a particular scenario but it is something that treasury is working closely with all of the federal agencies involved with these institutions including the regulators and including the reporting agencies. to make sure the risks are are properly disclosed and measured and we have a better understanding of what the potential risks would be. we are monitoring this daily. >> ok, i would encourage you to continue to do that. one of the problems is the inability of some of these securitization trusts to deal with loc land title records

trustto assign deeds of and mortgages. when an american homeowners sets down at the kitchen table to write the monthly mortgage check, how does that homeowner know that he or she is paying the correct letter? >lender? >> that is an important question and it is important to separate the legal process versus the steps that individual services are taking to make sure they follow below. as i said earlier, we have a group of federal agencies and state attorneys general in with these entities making sure that they are following the law and those entities not following the law should and will be held accountable. it is important to separate the legal structure from what is actually >> >> thank you. my time is up.

there are state courts that have held the mortgage electronic ristration system and they say they do not wk. the deeds of trust and mortgages are signed m underers and they said -- are assigned under mers and they say it does not work and that could create a problem, thank you. >> mr. silvers. >> i would like to pursue the previous train of thought i am concerned about treasury making representations about no systemic ris it was referred to a demand letter sent by a number of bondholders including the federal reserve bank of new york, one of the instutions that is encompassed by list of regulators and the like the treasury ordinates with. are you familiar with that letter? >> yes, i am.

>> that letter asks for $47 billion of mortgage-backed securities to be repurchased at par. do you know what those -- do you know the market value of those bonds today? >> at this point, i am not prepared to comment on pending li>> ok, fine. let me tell you what the fed says they are worth. they tell us they are worth 50 cents on the dollar. to bank ofs request america is honored, bank of america, assuming they are carrying -- assuming when they buy them back, they marked them to market, bank of america will take a $23 billion loss. the fedal reserve further informs us that there is nothing particularly unique about that

particular set of mortgage- backed securities. that means they have not been chosen because they are particularly bad. they believe they are of a common quality with the rest of bank of america's underwritten mortgage-backed securities. there is $2 trillion of underwritten bank of america securities. five such talk deals, five such requests to bank of america will amount to more than the crent market capitalization of bank of america which is $115 billion. do you wish to retract your statement that there was no systemic risk in this situation? the word is risk, not certainty. i would urge you to do so because these things can b embarrassing later. >> my statement earlier was that is still early and we are working very closely with 11

states -- a 11 regulatory and federal agencies. we are watching this every day. at this stage, there appears to be no evidence of a systemic risk but again it is early and it is something we are monitoring daily. >> let me suggest to you that it is still early is perfectly acceptable. the notion that there -- is it your position that bankamerica honoring five of these things would not psent a systemic rest? five of these requests, the first of which was made by the federal reserve is bank of america not systemically vulnerable? >> i am not prepared to comment on a particular institution but i think as we look at the put back risk, the litigation involved, the severity, the probability and the time it would take to go through these, those are all important factors to be considered in looking at the risk.

we said -- we did not say there was no rest. there does not -- evidence of a systemic risk. >> if the treasury comes back to us and is discussing whether we need to deploy further public funds to rescue bank of america or such other institutions as might be affected by these events, i hope we get a similar kind of indifference to their fate after it is too late. it strikes me that in light of the mathematics, it is not a plausible position that there is no systemic risk here. a want t take of two other statements that are not plausible. you suggest at the beginning of your statement and i cannot repeated verbatim, you say is a good thing that more homes be put on the market as a result of foreclosure. is that the administration's position? >> when you look at the current

market for sales >> do we want more homes but a market now as prices are falling? >> we want homes to be sold to homeowners that can afford them and stay in them. >> that is now my question. do we want to increase the inventory now in the marketplace and drive down home prices? is that the public position? is that the position of e administration as to what is good for our country now? >> the position is that we want houses to be sold to home owners back enough for them -- >> and do we want more or less? i'm asking you a binary question. more houses on the market right now, less houses on the market right now? >> i would say that if you have a home whether -- >> you are not answer my question, more or less?

>> we need to he the homes on the market to go through and be resold to homeowners who can purchase them and afford to stay in and stabilize neighborhoods. many of the homes that are -- >> you still have not answered my question. do we want to drive housing prices down? would we rather drive housing prices down? >> agaia -- >> have a possibly be in the interest of the united states government to drive down housing prices? thank you. >> i will change gears a little bit. it is not because i'm not concerned about these issues but they raise them quite strongly and i have other concerns about the program.

your stated goals or the goals you have articulated is that he would likehamp to help a three - million 4 million borrowers. 1.3 million people have entered into modifications so far? many of these people and debatehamp program when 150,000 borrowers were entering the program per month and now we are at 20,000-30,000 per month and the program has 24 months to run. if my math is correct, we are at 1.2 million and we are getting 20,000 deaths and 30,000 per month, we will not get 4 million. can you tell me how you can judge this as a success if we are not going to make the minimum standard?

>> that is a question we talk about very regularly and my office. the numbers that you stated are correct about li firsten modifications. about the first lien modifications. ashe crisis has moved to unemployment and principal reduction, our programs have changed and so the numbers you are discussing relates l the firstien modification. we have the unemployment forbearance program which became effective in august. we have a partnership with the fha program on a refinance program that became effective in september that allows principal reduction and refinance into an fha mortgage we also have

additional incentives for principal reduction along with the hardest hit on the initiative. we look across all of those programs and respond to a changing housing market in our efforts or originally, your calls for a stay ha it for hamp ogram.the we are trying to help additional people but the goal we set a h for theamp program, should be lower that? what is your goal for the hamp program. ? >> the other programs for unemployment and principal reduction are in fact part a of thehamp program. we have a dat debate -- we have th havee hamp program to adato .

we took money and out of the hamp allocation and moved to state finance agencies to provide tailored assistance to unemployed homeowns and work with principal reduction in those markets. >> re about--- you talked about are-defaults. the permit modification under these programs is for five years, it is not permanent. when that five-year period is up, you will return to the previous payment levels. presumably, if something has not changed in the housing market like a significant increase in prices, these will be bar workers who are seriously under water with rates reset back to making payments that they cannot

currently afford. why do we think in five years they will be able to afford the payments that they can afford now? what will change between now and five years that will result in something close to a success? >> let me first just make a clarification to the permit modification and the recess. after five years, the rates adjust to the current rate. , the current freddie mac rate so they will adjust. there will be a just and up from 2%, it will still be an adjustment up to a rate that still consistent with today's historic low rates. in terms of the five years, the homeowner has gotten some principal reduction because of the amortization at a very low rate. they have played -- they have paid them more principle than they otherwise would have.

homeowners to stake h on theiramp ma -- homeowners who stay close to their hamp modification will get benefits. there is time for the employment situation or other hardships in that family circumstance to improve and certainly over 60% of homeowners in hamp modification have lost a job or had loss of wages. >> thank you. >> thank you as i stated in my opening, treasury often in its defense of ham in defense of to non-cess, referred no ton hamp modifications.

it is positive that these borrowers are not in foreclosure, the question remains on sustainability of the proprietary modifications of whether homeowners are better off. the occ and ots reports notwithstanding, we note -- we need to know this is a the terms of these perspiratory modifications to prepare -- to compare among servicers. well treasury be providing additional data with respect non-hamp mods? >> this is something we have discussed and we spend time thinng about within treasury. in terms h of theamp contract to services, our contractual relationship with services goes tohe modifications whe we

are paying tax their incentives. we don't have a supervisory authority over those modifications outside of hamp. because we are focused and concerned about that, we have asked hamp services to participate in a monthly survey about what happens to homeowners who are eithe not approved and not expected for hp and what happens to, as who are in a trial modification that gets canceled. we publish those results. in addition, we work closely with occ-ots metrics to use that as a valid letter or reality check. >> so going of the last few days, the reports issued by treasury, hope now, and the ots

--each of these reports continues to expand. it is still not that easy for the public nor for the oversight panel, or for congress to really assess the effectiveness of these proprietary modifications. c reportcases in the ot you cannot understand the actual terms of some of the modifications. there are often groupings of all, and another term -- so the numbers are not always brought out to determine whether these reductions are for one, two years, and to understand the impact of them. do they include lump-m payments for late fees? how sustainable are they in the borrower?the bar were >> we are committed to

transparency in the program, and committed our survey in the spring to include the disposition, and as we continue to follow this position we will continue to expand requirements of servicers because we do realize within the program we have contractual relationships with servicers regulated by a number of different agencies. this is one place to put it all together. >> i think we all support those provisions in the treasury's monthly report that breaks down performance by services. you do not see that in the occ report. it does not provide the public a means to distinguish servicers' performance. we do support a greater ability for the occ to provide a breakdown by servicer with respect to proprietary mods? >> i can speak for the treasury

programs and say we're very committed to transparency and continue to expand reports every month and put demands on servicers for more information such that they would not save this overload. >> because your reports are only with those contrts did and because covers only 65% of the market and because it's only a survey, we do supportur recognize the need for national reportg requirements similar to what banks are required to provide in mortgage origination? again, we support transparency in the modification business to make sure the taxpayer dollars are going to servicers for programs meeting guidelines and falling all applicable laws. >> thank you, and i intend to follow up with members of the

following panel. >> can you tell me how many second liens have been modified? >> in terms of, if i understand, one of the second liens modified through relevant programs --that did it we do not have for all institutions. we're beginning to collect the data on the treasury programs seconding modification program which is an enhancement to hamp that has major servicers and some oths. we do not have data to report yet. the program really began at the beginning of october. >> send it to us as soon as you get it. >> i will be in a public report. >> [unintelligible] --carrying a on the books at 90% of value? >> we hear that particular thing

a lot. the impact of such killings and the modification market is something we are very concerned about. -- of the second liens. it is why we put together the enhance.rogram, and han that program has a platform that matches the first and second, and the second lien holder has to write it down. as part of our program for refinance into fha we offer incentives to reduce the second lien to allow homeowners to refinance. while we do not mandate second lien writedowns, we are indifferent to it in a first lien program, and try to provide incentives for second liens. >> i think you are right in terms of your model, hamp.

but isn't it standard industry to write down the second marines first, then move to the first liens? >> from building party, yes, that should be the way that it operates. >> should and we put an emphasis on that? it seems the only reason they're carrying the second inning is because they don't want to write them down. but they're not anywhere near worth 90% of the value. >> and important pieces to make sure the first and second are matched. >> you say every person gets a significant benefit. can you explain? if a temporary modification fails, the person must pay the money back. what is the significant benefit? >> let me first talk about the

permanent modificions now, beginning june 1, a homeowners provide a friend documentation. a homeowner is expected to convert to a permanent modification with the only reason to not be failure to make payments. they are getting a second chance to qualify. if you return to where we were at the beginning of the program, there was a huge backlog of homeowners severely delinquent on mortgages, struggling to find a servicer, and struggling to get a modification. by coming into the hamp program, the homeowners got an immediate reduction in payments and the opportunity for additional time to figure out if remaining in the home would be sustainable, or time to make other living arrangements. to have bought some time.

>> a follow-up on the question from mr. silver. gmac so has over $17 billion in taxpayer funds. what are you doing to make sure that institution supported by taxpayers are not acting improperly in? >> as i know that the panel knows, treasury has an investment in gmac --but immediately upon learning of the alleged robo-setting issues, we continue to be in touch with gmac management. they have reported back that other than the time to correct some of those the documentation problems, they don't see it a major risk in their system, but we are watching that very closely and take it very seriously. >> so they are not sending out

anyone to find out who actually holds the mortgage signings? any type of physical follow-up on the fact of their mortgages out there? that they have them and actually have title to the land that they are trying to foreclose on? >> at this time we are supporting all the agencies that are doing investigations of those then are monitoring closely. y is not doing anything independently? you just take the word of the institutions and banks that they do have documentation?

it is important for all the other people to look into it, but it seems these are programs where treasury has a direct involvement as an organization, and this seems to be a critical part of the process. >> that is an important issue, and something that at this time we're looking at foreclosure prevention, that process separate from the foreclosure sale process. to modify a mortgage there is not a need to have clear title. you need information from the net, but not a physical but to modify the mortgage. the focus of the hamp program is to make sure homeowner day in their homes, and on good to foreclosure sales. to the extent it is not successful, we expect all hamp- participating servicers to follow the law. >> thank you.

let's say that i want to buy a house, and it is foreclosed. how the one know when i buy that house i will receive a good, legal [inaudible] on that house? there are all sorts of questions about whether or not the securitization trust or the servicer can deliver. >> homeowners buying a house get title insurance mingo one of the things we're very concerned about -- a title insurance. one of the things 're very concerned about in housing market is making sure that the miners have trust in the system and continue to buy homes, and do not have a lack of trust in that. reading the news, homeowners would have reason to be concerned. >> you anticipated my next

question -- are title insurance companies issuing a clean policies? where the property liens were recorded into the system? >> i think we have to separate the mer system which has a lot of discussion in court compared to the way servicers are following the processes under mers. to the extent the home has gone through foreclosure, whether for closed with a judge or otherwise, the judge has granted title and the title has been insured. the homeowner should be able to purchase the home and have a title insurance. to the extent there is litigation with mers, as i said

earlier, i am aware of the litigation around mers. it is stil in the lower courts. so, i cannot really imagine the outcome, but we're watching the uncertainty in the market. >> i read in the paper that one of the too big to fail in churches went through title insurance companies that were balking at issuing policies, and offered to indemnify them. if thewo big to fail indemnifies and it blows up, guess who pays for it? we he tarp ii unless the dog frank bill liquefies them. it is not a good answer. it is in play, but a little bit frightening. speaking of frightening, i will move on to fannie and freddie who are also co-owners of mers and apparently did billions of

dollars of securitization space upon it. certainly someone at fannie and freddie thought about mers. what diligence did they do? did they receive legal opinions, and if so, could we see them as to the efficacy of the mers program? >> cannot testify as to what fannie mae and freddie mac did in reference to mers. mers has been part of the mortgage securitization system for a long time and there have been many legal cases on it. >> is it the opinion of the department of treasury that mers system works to deliver a good legal title to propert that it properly allows notes to be endorsed, and allows for

proper sign hinges-- signages. >> we are continuing to dig deeper on this, but at the early stage it does not appear to be a fundamental legal issue, but rather how mers is used based on a different state and local laws governing the real estate transactions across the country. there is still more work to be done there. >> ok, let's say that in the ceo of a too big to fail, and i made a lot of second mortgage loans. i know that people are encouraged me to write this off, but if i do capital will be impaired, and will be a substantial loss, and i will be hurt, possibly put out of business. so, my response to people ask me to write them off is that i may

have the money today, but in another couple of years, the housing market may recover -- so if i write them off today, the my shareholders will sue me. the to the same economists who tells them in two years to get 40 cents on the same enomist -- they go to the same econists to says that. so, what will i do? >> principal forgiveness -- summarize why it is one of the most complicated parts of the mortgage modification business. once you take it you lose the opportunity to get it back. in a principal reduction alternative we have under hamp require services to run two net present value copulations, one with principal production, one without. in those cases where it is net

present value positive to reduce principal, is there justification there to reduce it? >> what if i decide to write these things down, imagine it will solve the problems -- but i want an equiicker here so that if the house appreciates over the next few years, i will get a piece of that. we will share it in three ways. give some to me because i read it off, some to treasury because it extended taxpayer funds, and give a substantial portion to the borrowers because i want to keep them interested in remaining in the house and keeping the neighborhood up. is there a problem with that approach? >> there is not. the principal reduction of some stood under hamp does not appreciate shared principal approaches him. i'm not sure the industry has

the capacity to do it, but it is not prohibitive. we but the guidance out with the expectation that could be something that will change. >> i can send them the one-page document. >> mr. silvers? >> i want to explore the question of the relevance of irregularities in the title system to hamp. i acceptour testimony earlier that you are not in foreclosure when you get hamp assistance, but hamp does make payments to servicers, correct? up front. isn't there an assumption that that servicer is representing someone with a good clean? why would we make the payment if that were not true? >> there is the assumption that

the servicer is following the loss. that is required in the contract. if we learn something after the fact that contradicts that, we can call that the incentive -- that they are following the laws. >> how we know in light of all the discussions, and i think mcwaters and the chairmen have summarized the issues. in light of all the state law issues, had we know that people who do not have buildings are getting federal money? >> we do not. >> hold it. that is the issue. the issue of the treasury would be diligent at looking into -- you said that we do not. these are complicated questions.

in view of what is potentially a play as some researchers in banks getting public money under false pretenses, we ought to figure out whether it is true or not. i take from your answer that you are looking into it? >> that is right. >> i have been clarified that there is the relevance between the two. i look forward to your findings. let me shift to something i'm very supportive of the treasury's direction --i got an opening statement response that you want to expand the reach of treasuries, the mitigation for closure programs. you field of numbers of permanent mods should be expanded. you want to reh the unemployed. did i hear you correctly?

what you see as the major obstacles to that? are we having difficulty reaching an evolving people? >> there are few points. a couple of things to say about unemployment -- it differs across markets. hamp is a national, one-size fits all program. one of the changes we made to respond to the local nature of unemployment was the hardest hit funds so different states could create programs to better target the unemployed there. one, just making sure that we can tailor programs to local market conditions. second is our reach. this is from a struggling homeowners are scared. they're getting bills. they are not sure who to respond to. we run our reach events.

we have a fat 40 across the country in the past year. >> how many people attended? >> i do not have the number of hand, bui would estimate about 30,000. >> are you familiar with the neighborhood assistance program of america? >> yes. >> in a letter to our panel they have said in 23 our reach events of there's they have had approximately 700,000 people attend. do you have any reason to doubt that is true? >> i have no reason to doubt it, but am not familiar with it. >> can we learn something from that? is there a way thathe treasury with its vast resources can get to that level of participation? just getting people and the door, not talking about

outcomes. >> the work with the number of housing counselors and state and local mediators to figure out the best way to have about out to reach. >> i'm not very focused on the mods, but on the intake. you said 30,000 people for all your events around the country. naca did more than that in a single event in the see a couple of weeks ago -- in washington, d.c. that was on a friday night at 10:00 p.m. at t convention center. we should be able to learn something from that. >> thank you. doctor? >> help me here was something i don't understand about the program.

i was not involved in the last report. if the mvp model shows the net difference is positive, it suggests is in the best interest of borrowers and lenders to modify the mortgage. if that is the case, why do we have to pay them to do it? why people to do something that seemingly is in the best interest? what prevents them from doing it on their own? >> that is an important question. two things. one on the hamp program, part of the incentives for servicers is compensation for moving to an affordability standard and certain protocols that require the full change in their business model. it is compensation for things they have had to do in a

different way. second, within the hamp program there are some cases where the investor incentives are an important piece of the modification being mvp positive. >> your first response was there seem to be things outside the mvp model not being taken into account -- the cost of changing the business model, they must pay them because the mvp model does not include all the costs? >> no, when you look back to the beginning of the program, hamp is a voluntary program, getting the servicers, investors, and homeowners to the table, and to change the business model to do that required some incentives. even with those incentives there were some doubts servicers would sign up. it took a full year to get close

to 100 non-gse servicers signed up for hamp. >> let me build on that. ish of your comclean about hamp thatt has set a standard. it changed the way people are doing business in the market. -- much of your claim is that. you have swn servicers there's a better way to do business. what you need to keep doing anything? what are you accomplishing now? everyone recognizes a standard you set. great. but we still need treasury involved in this once you have set the standard? >> the hamp program does a couple of important things. one because of a servicehat participate are required to

about a week homeowners first four hamp. it keeps consistency across the industry. second, as this panel has indicated to treasury a number of times, there is intense as this and see -- and consistency in reporting, and this during the time of crisis provides a standard platform on which other modifications can be based. >> once the standard is established, the platform, i'm struggling to understand what there is left to do? everyone should be doing it like the treasury says. >> for the firstling program we can talk about the change in the industry standard. as you have indicated, it is important that there is the unemployment program still beming new in treasury. the entire platform for the way

short forms are handled. having the standard of form can change a number of things beyond firstling modifications. >> i want to build on the question from my fellow panelists. in written testimony which we have not yet heard, julia goldman hamp makes borrowers worse off because they're reported as being delinquent to credit bureaus and have the late fees and interest continues to accumulate. you have said it makes them better off. she ss that makes them more soft. is she correct? >> with the trial.

it come and try modifications -- it is impornt to refer to early in the program when people couldome without documentation -- with the trial modifications -- and just get immediate payment relief. when i say better off i'm talking about program-wide, on the whole, having that many homeowners at that time in crisis receiving immediate assistance and get time with an overall benefit. certainly when you provide time to a large number of people there will be cases where individuals say, if i know would be bad news, i would rather have it now. we do your of those. we take them seriously. it is very troubling. but when you look at the million who got immediate relief last year during the crisis, on balance, it is the right thing. >> thank you. superintendent? >> i would like to follow-up on

your discussion with damon regarding your unemployment progress. in your testimony you acknowledge that unemployment is really going to be a driving force in driving for closures. i saw up close when have the panel joined your ou reach forum in atlanta, and in talking to both counselors and individual borrowers it was clear there are many individuals there who were in financial difficulty because of unemployment or under- employment. you referenced the it treasuries and one of program that provides three months of forbearance. how do you contemplate providing data to assess the results of that program the? >> the program became effective in august and we will be

incorporating data into the public report once it is available and validated. >> recognizing many individuals us put to work out of work for between six and 12 months, behind on mortgage payments for a similar terms, who is the population that this three-month forbearances intended to help? >> a coue of things to think about. it is a very important issue, unemployment, in terms of modification. first, as was said earlier, you need a job to pay the mortgage. unemployment forbearance is really intended to provide temporary suspense for the unemployed to enable them to find a job. >> people who are just unemployed and expect to find a job within three months to six months? >> and provides a minimum of three months.

services can go as long as they want. many gop to six months. that is expected that some will not find a job and may end up in a short sale. some may become quickly be employed in become current on their payment and have some benefit. some may become reemployed at a lower income level and be eligible for hamp. that is a one-size, national program. in those markets 18 stas with higher than average unemployment rates. we have tailored programs for each of the housing finance agencies can do something that works in the market. those include anything from anythinghfa targeting certain professions that have been hardest hit and share in the mortgage payment, some combining them with job counseling and retraining.

>> we look forwa to the data on the effects and success of the program. in the remaining minutes i want to shift to the web portal. this is something we have talked about for a long time at the panel. we have been urging treasury to get that with the portal upnd running so there is an effective means for borwers and housing council is to reach servicers to facilitate the approval process. can you give me some indicatio as to where it stands? how many borrowers, how many loans are being processed through the porthole? home loan portal. >> i cannot testify to the specific performance, but we at the treasury are very supportive of the home loan port run by the hope now alliance.

it is a very important step to not only automate the collection process, but also to involve counselors who can help assemble those documents packages. we are very supportive of that effort. in addition, as we have streamlined documentation within treasury, we have tried to make sure all forms are available to be down loaded on the web at. >> will the treasury used the system or its compliance agents to test for compliance, to reach out to borrowers? my understanding is that it is not currently available for access by regulators. >> our compliance is focused on the documentation issues more broadly across all of the

channels, whether loan port, or mail. >> thank you and will the second panel please come forward?

>> thank you, this panel is made up of the senior advisor for help lines, had it of the office of the control of currency, catherine, from the university of iowa college of law, julia gordon, senior policy council center for responsible lending, gy, ceo and publisher of inside mortgage finance. >> thank you for inviting me to speak today. my name is guy, and i'm the ceo of mortgage finance, a specialist firm that publishes a variety of products related to the mortgage market. we are not affiliated with any blunders per say, or consumers. we're just objective observers of the facts.

at any opinions expressed they are my personal opinions and do not represent the views of inside mortgage finance publications. in my written testimony i have responded to nearly every one of the questions you have asked. but i will summarize some major points from a that testimony. i like to provide a reality check on what is going on the mortgage market. sometimes that gets lost. first of all, the mortgage industry is divided into two separate businesses, one is the production side, the other the service in side. first of all talk about the publishing said. good and bad news when we look at that site of the mortgage business these days. good news, long-term mortgage rates are extremely low. there is plentiful supply of mortgage is to with good credit and down payments. the bad news is about 90% of all the funding is coming from the

government and not many people qualify for that government funding. what of the private sector to be there is is pretty much related to home equity and high balanced jumbo mortgage lending, was a good places without government activity. to make matters worse, we seems that the world for most funding will continue to come from the government. there is no secondary market or investor demand for mortgages or mortgage-buy securities the do not carry the guarantee from the u.s. government. private lenders cannot compete with the government for mortgage customers, as a result. we seem to be afraid to reduce the government's massive support for fear of disrupting a very fragile housing market, so leaves us in the state of limbo. unfortunately, matters are probably worse in the servicing business. to talk about the success or failure of recent mortgage modification efforts or the

scope of current foreclosure problems it is necessary to look at the massive problems we are attempting to deal with. between 2005 and 2007, the housing boom peaked. and the mortgage them heat. of the last few years, about one third of the mortgages made -- during the peak period -- roughly 13 billion loans could be recognized as non-profit. they're made to subprime borrowers, with little or no documentation, little or no down payment, or some other high risk of default characteristics. his roots of mortgages made up the bulk of defaults and foreclosures we have seen for the last three years. nearly one-third of the homes sold during the three-year boom was sold to investors for people buying second homes. factor in the back of high unemployment and the sharp drop in home values, and you get a good idea of the scope of

problems we're facing. it is literally a perfect storm of mortgage problems that are difficult to resolve with loan modifications or any other foreclosure avoidance measure. right now we have a situation where the average barr were facing foreclosure is somewhere around a year and a half behind on their mortgage payments borrowers -- where the payments is that far behind. by traditional standards, six months is the point of no return. i want going to the hamp numbers. needless to say, the number of hamp on vacation or overall modifications has been dwarfed by the number of increases in defaulted mortgages or for closures of the past year. the record how problems in the mortgage market continued to take their toll on housing market. last month 40% of the transactions of purchase and ball distressed properties. namely foreclosures or short

sales involving properties headed for foreclosures. that was up from 45% a year earlier. the ongoing flood to consider modification on a loan bonuses has taxed the industry used to dealing with one quarter of the number. is it a surprise mortgage services have been overwhelmed and have tried to take shortcuts? no, it is not. it is a development that can only slow down a housing recovery moving at a stale pace, if at all. thank you. >> good morning. thank you so much for inviting me to address you today. i served as senior policy council at the center for responsible lending, and non- profits it research and policy

organization. as we are here today, mortgage servicers are in the process of foreclosing on over two million families. 3 million or more are weeks away from receiving a notice of default. over the next several years the talks a combination of high unemployment and under water loans could mean a stunning total of more than 13 million foreclosures. the african-american and latino families are more likely than whites to lose their homes. we estimate that communities of color will lose over $360 wealth. of guelp so far the major government response to the crisis has been hamp. it has fallen far short of its initial goals. even families who did not convert were left worse off than before.

few new trials are beginning each month, replaced by a trend of servicers moving modification activities outside of hamp for there is little transparency or accountability. the principal reductions we need are not happening in hamp and not really happening out of hamp either except in some small part falling as, usually those mark down on acquisition. servicers need to close quickly in the volume to make money -- that is the real problem. that is why people get foreclosed on even if they are in the middle of review. it has led to unacceptable but routine practice of falsifying court documents when it is sometimes impossible or too expensive to conduct a process legally. it is increasingly clear that one incomplete payment or counting mistakes can land you on and apparently unstoppable

conveyor belt to eviction. the crisis did not need to be this bad. if government had acted quickly and forcefully at the beginning, we could have significantly limited damage. instead our government believed in the early assurances of services that they would handle the crisis. when that turned out to be wrong, we provided legislative tools such as investors safe harbor, cajoled, begged, and threatened -- none of the strategies worked. it is clear servicers will not do what needs to be done unless someone makes them do it. the fact is, the hamp program has never had the tools it truly needed to succeed. a key part of the original administration foreclosure prevention plan was to involve the bankruptcy courts to serve as the nation's comprehensive resolution authority when the debt goes bad. the field subprime lenders got

bankruptcy protection, and so did lehman brothers. bankruptcy homes can deal with foreclosures on vacation homes, and other luxury properties, but homeowners have no alternative than to rely on the voluntary health of servicers which had no intention of doing anything other than business as usual. those laws should be changed. let's broaden and enforce a common-sense practice requiring servicers to review all loans for alternatives to foreclosure. it alone modifications when they make fun into cents, or short sales. it did when they find that they make sense. the so-called mandatory loss mitigation standard already is supposed to be in place and the

government-backed housing programs. to make it work in practice, homeowners need a chance to stop their foreclosures if their cases not been properly reviewed. in many cases the homeowners will need access to legal help. congress should appropriate the $35 million authorized in the dodd-frank act. it will make a meaningful difference for homeowners who cannot afford an attorney. we recommend regulators of banks use all the power to let servicers know they can't fly under the returradar. this is the perfect opportunity for the new consumer bureau to show what it can do. there is no silver bullet strategy to fix every mortgage,

and not every foreclosure is avoidable. but even one unnecessary for closure is devastating to the family and their neighbors. multiple ones are devastating to us all. once and for all let's make sure that the system works. thank you. >> professor? >> my name is catherine porter. i'm a law professor doing research on consumer credit, protection, a regulation, and a mortgage-servicing the debt in the last months allegation about widespread errors in the process triggered moratorium's by a few of the nation's largest servicers. these along with this behavior that led to them are the most recent and visible symptoms of a chronically sick industry. in 2007, released in empirical study showing 40% of the

mortgage companies' the court in bankruptcy cases did not include a copy of the note. that is despite the clear legal requirement that it be included. sadly, the problems that we're hearing of today are largely demonstrative of those that both i and others have described for years now. to summarize, the key problems with the foreclosure process are, first, the industry is a high-volume, cost-cutting industry. it relies on staff with insufficient train. it provides a weak oversight of that step. it operates with an adequate quality control. it is not transparent about its profit structure and affiliations with related entities. these problems are at the heart of the robo-signings scandal. that practice is entirely consistent with the industry's business model and standard of ethics. robo-signings erodes confidence in the rule of law in this country.

second, the paper work on the troubled securitized loans often does not seem to comply with legal requirements. the primary concerns are first that some people work is missing. evidenced by the increasing use of loss and the affidavits to try to remedy past mistakes. secondly, some transfers of loan simply did not occur -- occur, or not properly conducted. the proliferations of signings in, the widespread use of mers that eroded public property records, and confusion about the physical paper for these loans all exposed the industry to attack from investors and from homeowners. at the core is whether the securitization trust has the center for clothes, and whether investors have been defrauded. contrary to what ms. caldwell suggested, i think the title is primary to a good process.

the third problem, the minister of miscellaneous problems you see, including primarily the bloating of homeowners accounts with bogus or suspected default fees, and the continuing difficulty with the server serves finding and sleeping under the rug the fact that the originations were not documented correctly in did not meet standards. if these practices are allowed to continue, we will see several kinds of harm. an increasing number of homeowners will challenge their foreclosures in court. the will be class actions by homeowners if problems are identified to exist across entire pools of securitized loans. in a non-judicial foreclosures it was the intense public frustration about the lack of access to a court to adjudicate these problems. second, investors will see mortgage companies to force

them, try to force them to buy back the loans. one cannot easily put the genie back into the bottle with regard to litigation. notwithstanding the servicers protest titian's that everything is basically all right. the banks'argument that the foreclosures and not faulty because of homeowner is in default should be given zero wait. regardless of whether a homeowner cannot pay, the mortgage company must comply with the relevant law to exercise their right. due process does not bend in the wind. it is a fundamental principle that protect all americans, consumers, and businesses as they invoke the law to their help. finally, i think regulators will have to devote substantial resources to investigating problems with faulty foreclosures. it is crucial the government investigation be transparent. american taxpayers need to be shown up in concrete terms what concretedodd-frank act would

change how regulators intend to carry out their promises about consumer protection -- will have to show in concrete terms that the act would change the. >> chairman, my name is joe evers. i work in the office of the comptroller and currency. in the role i oversee that collection -- leading to the performance of firstling residential mortgages. i appreciate the opportunity to share in cites the data provide some mortgage modification activities. consistent with the panel's letter of invitation, my written testimony includes data and charts to demonstrate trans we see pertaining to loan modifications and delinquencies on them for mortgages serviced by the largest national banks and federally regulated bodies. beginning in 2008, the data

began to be collected, and then published in quarterly reports. the most recent report from last month reflects data at the end of june 2010 and represents almost 34 million firstling mortgage loans, or 65% of all firstling mortgages outstanding in the country, killing nearly six trillion in outstanding balances. early in the mortgage crisis servicers were generally relying on traditional measures. typically, various informal payment plans, they allowed a borrowers to suspend the mortgage payment for some time. typically is successful in normal times, a give billy clinton borrowers -- gave delinquent borrowers the chance to catch up. as it increased to unprecedented levels, it became clear more

permanent models would be needed. the data provided evidence that loan modifications completed in 2008 were experiencing high re- default rates. as a result the commission had banks implement a program to make more sustainable modifications. when taking these actions, mortgage servicers are taking into account both needs and of borrowers and interests of investors. the report provides data on health modification action affects monthly payments. and hal modifications performed over time. it allows us to evaluate the effect on long-term sustainable. over the past several quarters we have seen more sustainable modifications offered.

they now represent over 90% of all those provided. modifications made during the second quarter 2010 reduced monthly payments by the average of $427. it resulted in a 62% reduction in monthly payments from one year ago. further, 56% of the modifications made during the second quarter reduced the monthly payment by 20% or more, and represent an average savings of $690 per month. our data also illustrate the rate of which previously- modified loans become delinquent again, or default. [unintelligible] our data show that while all modifications experience re- default --excuse me --more

recent modifications performed better than earlier ones did. those that resulted in lower monthly payments consistently perform better over time than those that increase payments or leave them unchanged. the better performance directly correlates to the amount of payment reduction. i not ask large institutions to make more modifications? our data show that servicers have. these actions are resulting in more sustainable modifications and fewer re-defaults. >> thank you. >> tinder for having me here today. i'm currently a senior adviser to the hope now alliance.

it was formed in 2007 to expand and coordinate industry response. to reach borrowers at risk, counsel them, and work towards alternatives for for question. we have supported the hot line which has today demand over 4 million calls, operating 24 hours per day, seven days per week. it is supported by over 600 counsellors. we have had over 90 out reaches throughout the county. it does not mirror the hundreds of thousands through other out -- vince, this is targeted. they are least 60 days or later

past due, or non-contact borrowers. the majority who come to these events have never contacted their servicer. we have a web-based system that allows for the uniform and take of applications for all types of loan modifications. that allows it stakeholders to see the same information in a secure manner. it delivers the package to the server server which is actionable, and and has information back and forth until a decision is made. 14 have signed up, some insurers, agencies across the country, it in 48 states. we welcome more endorsements and use of this portal. " now has also collected data across the industry for three years, monthly, to report on loss mitigation results. in august year-to-date we have

nearly 900,000 non-hamp mods may. another year to date foreclosure sales are 775,000 sales. here are the takeaways. loan modifications combined far exceed that of a loan sales to foreclosure. it is important to note that interventions are raking in should continue. the vast majority of the non- hamp modifications, in august, 91% had a lower principal- interest payment, better than a couple of years ago. [unintelligible] i quite agree that is integral and important that the government step for to put a protocol in place for modification and this protocol would have been difficult to put

into place of the west. i have been three years on this project. it has been a good step forward. the most important contribution of hamp is said the process offers homeowners a first line of defense to avoid foreclosures. the second is the importance of the waterfall. there is a uniform map of the activities that is necessary to ensure delinquent homeowners who seek help are being considered for solutions prior to foreclosure. have offers uniformity of foreclosures which is fair and systematic. there are many challenges around the program, and i will tell you a few of them that have been addressed by treasury. the challenges have impact of some of the uptake of the program. clearly, there were a lot of

changes as this was being rolled out. it is a complex effort. the changes required a retraining, hiring of staff, and changing of legacy systems. execution made it difficult quickly. it is a complex program. definitions are not clear. there is not agreement on imminent default. there are differences on at right attribution. while we are addressing the first, there is a broader debt issue. that has been cited today. the lack of uniformity for of the processes -- a cookie cutter approach would be a lot easier if everyone would accept the same documents. the servicers have legacy systems. they have to train, and get things in process. also, affordability and

eligibility -- everyone thought the start was good, after years of looking at the ratios. 31% seemed aggressive. many came in under 31%. they do not qualify. lots of people do not qualify, yet they are having trouble staying in their homes. high vacancy rates -- 30% of the market. those do not qualify. it is hard to get people to contact if they are not in their homes. when you look at the uptake of hamp, you need to accommodate for some of the foreclosures not going through. all of us need to do a better job communicating about what the processes and what the options are for all borrowers. whether it is hamp, or not, i believe it is a huge process.

you have asked me to speak a little bit about the current documentation issues in the market. >> could you bring it to close shortly? >> yes. the market issues are such that hope now works on the foreclosure process. no bar or should go to foreclosure without due process. that sets up confidence that companies are working for documentation issues. thank you. >> thank you. i would like to ask a question of all of the panel members. based on the fact the president said three or 4 million say it was a realistic projection for hamp, what do you think the realistic projections are? >> i think if you look at those solutions and those and not hamp solutions, you're looking

at 1 million solutions. >> at the end of the program, what you think they're realistic objective is after we are finished? >> for the modification program? >> the number of homes protected from foreclosure. >> i think we have systems and protocols in place across the market to look at foreclosure against the modification that was not in place in four years ago regulators will work with their banks and their -- and the investor community. >> mr. evers? >> i do not have a clear view on it. all i can tell you is that over the last five quarters, there has been 900 two thousand modifications completed, and that compares to about 476,000

completed foreclosures. i agree with faith that you have to look at what is happening with hamp to get a better sense of how many borrowers are being helped. >> i apologize, but i will turn your question a little bit and say that what concerns me is that what i am hearing is we have gotten up to speed with hamp slowly. what is the timeframe? what is the gigantic learning curve mean in anything remotely approaching a timely and effective fashion? >> realistic objectives -- first of all, we need to fix hamp, not end it. it is the only thing we have out there. if we take it away, we go backward in time.

the concept of the test has been a very useful one to get out there, and serves as a great benchmark for federal legislation, or four states to work on incorporating it into requirements for foreclosure. if there is a lot of use. i have provided testimony on what i call as a list of ways to fix it, and make it work better. until we have something better in place, let's fix it, and not get rid of it. we need much better programs in place. we need mandatory programs, and to the extent possible, we need third-party involvement to make sure everything is going as it should. >> the simple answer is i think the have goals are unrealistic. if there is any good news, i

think it is extremely unlikely that tarp or your panel will see anywhere near $30 billion spent on this program. my understanding is that in the first year and a half, about $400 million has been sent -- spent. that gives you a realistic expectation. >> the next question is, can you comment on the impact these foreclosure problems will have on the mortgage market? >> obviously, that is a tough question to answer. there are a couple of different areas we are looking at. one of them is just the issue of what is the liability in terms of servicers improperly foreclosing on a property? the industry's response is these are paper work problems, and in

the worst case, we refile the paper work. we get to the same point in two or three months. the state attorney generals and other regulators are looking at whether laws were violated. that brings up the question of legal action for criminal behavior, or whatever else. that is hard to quantify, too. the other issue is the losses that are surfacing now regarding mortgage securities, and securities investments. those are interesting to monitor. the losses have been pending on different reasons in the past. the latest reason is to go after them because of foreclosure paperwork. i have been covering this industry for 25 years. i am not aware of any successful litigation involving procedures that have been violated that would require a lender to buy

back loans did >> thank you. mr. mcwatters. >> thank you, senator. in your opening statement, you said there was $8.50 trillion of new residential mortgages made between 2005 and 2007, and about one-third were sub-prime with documentation problems. there are a lot of losses that are beginning, and they're not based solely on foreclosure issues. they are based on misrepresentations and warranties under writing that was misrepresented. what is your estimate -- do you have an estimate of what that -- of when that 2.8 trillion

dollars will be put back? >> it is important to identify what side of the universe we are talking about. there is approximately $6 trillion worth of mortgage securities outstanding. $1.50 trillion is what we call non-agency, which is basically guaranteed or insured by fannie mae or freddie mac. we're talking about a universe of $1.50 trillion. a disproportionate amount of the volume has involved sub-prime mortgages, or mortgages with default characteristics, and clearly they performed worse than anyone expected. the normal recourse at the mortgage industry uses is to require by? on those loans, and to go at the mortgage originator.

if it is bad in six months, they are required to buy back the loan. that process began in 2006. by 2008, all the major sub- prime mortgage originators were put out of business in this country. what we have left our major banks that acquired sub-prime loans, either through servicing, or another capacity. bank of america was one of the few major mortgage lenders that steered away from the sub-prime market. nevertheless, it is the target of all the vacation -- litigation. first of all, it is because they are a large bank, and that helps. they acquired countrywide financial, the largest sub-prime lender, and inherited the mortgage portfolio. >> as those loans moved into

pools, they may have read out the warranties -- they may have read-opt the warranties. i am not sure why you include fan it -- freddie and fannie. they were huge secure kaisers. if they took mortgage loans under misrepresentation, why should fannie and freddie not begin to exercise their rights to put back their loans to the mortgage originators? >> they are. currently, they are requiring repurchases by the major banks to the tune of about two billion dollars a quarter. they have the most problem because there are still in business. if you do not play ball, they will put you out of business. that is where most of the action is going on. fannie and freddie have been

aggressive, but they are getting pushed back from the mortgage industry. the most is in the non-agency area, because the parties are not around anymore. you have no leverage over the lenders, other than legal action. >> in your view, will this present a systemic problem? we have a lot better going to need to buy back loans. >> this has been going on for two or three years. if the amount of buybacks were to increase significantly, which i do not think will happen, however if these claims, particularly the recent ones involving foreclosures gained traction, it will increase the liability. it is not factored into the system. >> one new development is that

the investors are beginning to work in concert. they are suing the securitization sponsors and the securitization trust to force them to put back loans, which they have been on willing to do thus far because of conflict of interest issues and otherwise. how do you see that changing? >> it has been very unsuccessful to date. there were a lot requiring mortgage repurchases, but there were a lot of non-agency investments. freddie -- fannie and freddie have been successful. the original offending party is no longer around. they are going after people who acquired. it is hard to make a legal claim that bank of america is really liable for the quality of loans made three years earlier.

>> yes, but if bank of america put those into a securitization trust, and renew the warrant is, they're the same. i have read there is an increased use of statistical sampling, as opposed to having to approve each individual loan. ok. my time is up. .> thank you, mr. silvers >> mr. cecala, or any other member of the panel, in view of the exchange mr. cecala just had with mr. mcwatters, i remain deeply puzzled to what the federal reserve bank of new york is up to. do any of you have a theory? why is the federal reserve bank of new york asserting the sorts of claims we were just

discussing? >> i will take a quick shot. the federal reserve board of new york inherited a bunch of non- agency mortgage security investments as a result of the merger of j.p. morgan chase. bear stearns is the most obvious one. part of the agreement required the government to take over the worst assets because no bank wanted to acquire the bad ones. basically, the federal reserve board of new york is in position, having acquired a sizable amount of these assets, to try to get any money they could get out of anyone. they helped lead the effort to reclaim losses the investors served on. that is the motivation. >> they could have a good

enough claim to put their name behind it, which is not trivial. two other members of the panel have a theory? ok. secondly, i know your testimony was limited to matters of data. if you were in the room when i was discussing with miss caldwell bank of america's finances, but i make any mistakes in that analysis? >> well, i heard parts of it. my sense is what we are doing is working with banks to assess the put back rest, and make sure it is properly the mentioned, the banks have the reserves for that, and we are making sure they do a very full, complete analysis. >> how many 47-billion dollar by? could they do before they blow

through their capital? >> that -- >> is that not mathematical? >> you could do the numbers toward >> is less than 10. it is probably less than five before you guys would be pulling the fire alarms. >> well, like i said, the banks have to assess and dimension the risk. we are making sure they do that. i do not sure whether the estimates throw out in terms of exposure -- >> i understand that. i wanted to make sure i was not making mathematical mistakes. we have heard from different members of the panel and what this is two stories that are in the public interest with respect to what to do about the very large number of homes and

families that are facing foreclosure. i think there are two stories. one is something that andrew mellon said early in the great depression -- liquidate everything. let's get the homes out of the hands of the homeowners, and into the hands of the banks and sold onto the market as fast as we can. the second theory is, and one could look back at how bad advice worked out for him and mr. hoover, but then we can look at the other inclination, which is to try to keep as many people as possible in their homes. those are the two basic ideas of flight. in view of what we know of housing prices, and there affect on consumer demand, which of these ideas is right? which is in the national

interest? i ask any member of the panel to respond. >> i will start all responding. -- start out responding. there is no question that to resolve the housing crisis such as it is, you need to the limit or reduce distressed properties. the question is the time frame. it would be painful, there is no question, to try to burn through all of the foreclosures as quickly as possible, and get over the mess in two or three years, but recover. the worst case is you take action that drags it out for five or 10 years. >> my question is is it a better idea to throw people out of their homes and put the homes on the market, where keep them in the homes, paying something. which is better for the economy, housing prices, the viability of the financial system, for the

country? which course is better? >> i am happy to provide a straight answer. it is better to save the homes. what we want to do is keep homes from being sold in foreclosure. once the homes are sold in foreclosure, and the family is gone, you want a family living back in them. i would like to see the original family get to buy that home right back at the same price they kick them out for. before you get to the foreclosure sale, we should be doing every single thing we could do to keep people in their homes. once the sale is over, putting home to dump the back together again is difficult. >> my time has expired. see what.

-- thank you. congressman troske? >> i have a question for several of you. several of you, in your written statements, indicated that the rules under hamp were inappropriate, or overly onerous and did not address the problem directly. you also indicated the rules might be pushing servicers to modify mortgages outside of the program. can you respond? do think the rules are private, and if not, what should we do to modify it? >> one of the significant things we have seen with the hamp program was people put in trial modification without having paperwork checked. one of the most significant results of that is a lot of the borrowers were unable to make the payments at a reduced

amount, but were later kicked out because they could not meet the paperwork requirements. keep in mind, we have a huge number of borrowers that had blown out there with no paperwork -- no documentation of income. now, we are asking them to produce tax forms to qualify. i think that makes it very, very hard. there are other things talked about. we talked about the present value test. i think that is a good idea. it basically favors people that are under water on their mortgage. there are a number of borrowers who have come to me and said they had equity in their home, and that immediately almost disqualifies them because you can get more out of them with a foreclosure than you can with a loan modification. there are basic flaws in the program that discourage a lot of people. >> ms. gordon, would you care to address the question? >> complexity is never our

friend. with the kind of business model the servicers have, having relied on them alone to take on the task of read-underwriting all of these mortgages, we did not do the necessary things to make sure they stack up and increased capacity to make it right. for people who use non-profit housing counselors or attorneys, many of those borrowers submitted all of their documentation at the beginning of a trial modification, but the servicer did not necessarily want to bother looking at it, or was not sure what to do with it. in my written testimony i get a lot of reasons why i think there have been problems with hamp